Donald Trump’s stop-start tariff rollout has “significantly” increased global financial stability risks, the International Monetary Fund said in a new report published Tuesday.
The IMF’s Global Financial Stability Report (GFSR) was
published as global financial leaders gather for meetings in Washington under
the cloud of policy uncertainty triggered by Trump’s tariff announcements.
The administration’s tariff plans “triggered a bout of
policy uncertainty,” which was only exacerbated by the retaliatory measures
unveiled by China, the IMF said.
Against this backdrop, the GFSR’s authors found that
“global financial stability risks have increased significantly, driven by
tighter global financial conditions and heightened economic uncertainty.”
The Fund identified three vulnerabilities to financial
stability: High valuations in “key” equity and corporate debt markets;
highly-leveraged financial institutions including some hedge funds; and the
possibility of “further turbulence” in sovereign bond markets in countries with
high debt levels.
The bond markets became an unlikely cause for concern in
the United States earlier this month, with yields jumping sharply after Trump’s
tariffs went into effect.
The risk, however, extends far beyond the decisions taken
in Washington, with higher bond yields in countries considered a safe bet
feeding through into even higher borrowing costs elsewhere.
“Emerging market economies already facing the highest
real financing costs in a decade may now need to refinance their debt and fund
fiscal spending at higher costs,” the IMF said.
The Fund also warned that geopolitical risk — including
military conflicts — could raise risks to financial stability.
“Given high levels of leverage in the financial system
and growing interconnectedness between nonbank financial intermediaries and
banks, sufficient levels of capital and liquidity in the banking sector remain
the anchor of global financial stability,” the IMF said.
