Economic Uncertainties and risks

While many of the overhanging fragilities from the global financial crisis have eased, a number of uncertainties and risks loom on the horizon. Elevated levels of policy uncertainty continue to cloud prospects for world trade, development aid, migration and climate targets, and may delay a more broad-based rebound in global investment and productivity.

Rising geopolitical tensions could intensify a tendency towards more unilateral and isolationist policies.

The prolonged period of abundant global liquidity and low borrowing costs has contributed to a further rise in global debt levels and a build-up of financial imbalances.
It is also linked to the current high levels of asset prices, which suggest an under-pricing of risk.

Many developing economies—especially those with more open capital markets— remain vulnerable to spikes in risk aversion, a disorderly tightening of global liquidity conditions, and sudden capital withdrawal. Monetary policy normalization in developed
economies could trigger such a spike. Central banks in developed economies are currently operating in largely unchartered territory, with no historical precedent as guidance. This makes any adjustment of financial markets less predictable than during previous recoveries and amplifies the risks associated with policy errors.

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