The risk of a broader conflict in the Middle East threatens to reverse a surge in the price of riskier assets since the start of the year, the IMF’s top financial stability official has warned.
The fund’s Global Financial Stability Report, published on Tuesday, said expectations that the world economy would avoid a much-feared recession had driven up prices in assets such as stocks and lower-grade bonds since the turn of the year.
“At the beginning of the year we saw a lot of optimism in markets. There was this expectation of a soft landing globally, of inflation coming back to target,” said Tobias Adrian, director of the fund’s monetary and capital markets department. Lending costs had fallen “substantially”, he added, especially for higher risk borrowers.