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The IMF warned that the uneven distribution of COVID-19 vaccines runs the risk of exacerbating financial vulnerabilities, especially for border market economies, even though their approval and deployment have boosted expectations for a global recovery and high prices. of risk assets.
In its Global Financial Stability update released on Wednesday, the International Monetary Fund underscored that until coronavirus vaccines are widely available, the market rebound and economic recovery will continue to build on continued support from monetary and fiscal policy.
“The uneven distribution of vaccines runs the risk of exacerbating financial vulnerabilities, especially for border market economies,” he said.
A continued rebound in portfolio flows offers better financing options for emerging market economies facing high renewal needs in 2021, he said.
The approval and launch of vaccines have boosted expectations for a global recovery and raised the prices of risk assets, despite rising COVID-19 cases and weakening economic activity in late 2020, it noted The report.
Policy accommodation has eased liquidity strains so far, but solvency pressures may resurface in the near future, especially in riskier segments of credit markets and sectors most affected by the pandemic, the IMF said, adding than credit concerns and profitability challenges in low-interest countries. The rate environment can affect the ability and willingness of banks to make loans in the future.
“Policymakers must continue to provide support until a sustainable recovery is established: failure to comply can jeopardize the recovery of the global economy. However, with investors betting on persistent political backing and a sense of complacency permeating markets as asset valuations rise further, policymakers should be aware of the risks of a correction in the currency. market, ”said the IMF.
As monetary policy is expected to remain accommodative in the coming years, policy makers should address growing vulnerabilities to avoid jeopardizing growth in the medium term, he said.
Tobias Adrian, director of the IMF’s Capital and Monetary Markets Department, said that the absolute end of this pandemic will be a medical solution.
“So the vaccine news was very good and has boosted valuations. Also, throughout the year, of course, monetary policy supported by major central banks, but also emerging markets, central banks have supported asset prices by easing financial conditions, “he said.
“Now we are in a place where the ease of financial conditions is helping economic activity, it is helping countries and corporations to issue debt. But it is also accompanied by a rise in asset prices, especially in some sectors. And we are concerned that there are stretched valuations in some sectors. For example, in the technology sector, we are detecting some foam, as you point out. And there is certainly the risk of a market correction here, ”Adrian said.
Although there was a very sharp economic contraction, support from the monetary and fiscal sides has contained the bankruptcy so far.
“So the banks are in good shape. That is extremely important from a financial stability point of view. On the market side, of course, there is concern that we may see the massive sales, ”he said.
Last year there was a very strong sell-off that prompted central banks to step in and really support a very broad segment of the financial markets.
“We certainly could see more sell-offs at some point, at least in some market segments,” he said, adding that this could directly affect financial stability in an adverse way. But it could lead to a tightening of financial conditions.
Fabio Natalucci, deputy director of the Department of Monetary and Capital Markets said that the uneven distribution of vaccines creates this risk of asynchronous recovery.
“First of all, there is a health situation that needs to be addressed. There is also a problem in terms of recovery, ”he said. If there is an asynchronous recovery, countries are left behind, they could lose access to markets and financial conditions tighten.
“And then you would really see an increase in poverty, you could see an increase in inequality. That is why it is important that we address this as a global problem, globally, and that there is an equitable distribution of vaccines throughout the world, ”he said.
The total number of global coronavirus cases has exceeded 100.8 million, while deaths have reached more than 2.17 million, according to Johns Hopkins University.
