WASHINGTON: The International Monetary Fund (IMF) on Tuesday warned of “increasing vulnerabilities” in the global financial system and called on policymakers to tighten oversight of “nonbank” financial intermediaries like pension and investment funds.
In its Global Financial Stability Report (GFSR) on the health of the global financial system, the International Monetary Fund said financial markets appeared “complacent” to the threats posed by increased trade tensions and geopolitical uncertainty.
Markets in many countries — including the United States — have soared to record highs this year, pushing asset valuations to new highs on the back of a surge in enthusiasm for AI-related stocks.
The Fund warned that “risk asset prices are well above fundamentals, increasing the probability of disorderly corrections when adverse shocks occur,” adding that there had been “growing pressure” from increased government spending on the functioning of the financial markets.
“New evidence points to increasing vulnerabilities in the financial system,” it added, noting that the “increasing interconnectedness” of bank and nonbank financial intermediaries like pension and investment funds could amplify any shocks that occur.
“Policymakers should strengthen oversight of nonbank financial intermediaries,” the IMF said in the GFSR, adding that there should be “closer attention” paid to the private credit sector.
Other policy prescriptions included: preserving hard-won central bank independence — a possible nod to US President Donald Trump’s frequent criticism of the US Federal Reserve; curbing elevated government deficits; strengthening financial sector safety nets; and putting in place “effective” regulation and supervision of stablecoins.
IMF lifts 2025 global growth forecast
The International Monetary Fund on Tuesday lifted its outlook for global growth this year, flagging a milder-than-expected economic hit from Trump’s tariff policies while warning of risks ahead.
In its flagship World Economic Outlook (WEO) report — compiled before the most recent US-China tariff spat — the IMF hiked its 2025 global growth forecast to 3.2 percent, up from 3.0 in July, while leaving its prediction for 2026 unchanged at 3.1 percent.
The global inflation rate is expected to remain elevated at 4.2 percent this year, and 3.7 percent in 2026, underpinned by elevated inflation in several countries including the United States.
“The tariff shock itself is smaller than initially feared,” IMF chief economist Pierre-Olivier Gourinchas told reporters in Washington on Tuesday, adding that the private sector had also supported growth by responding to Trump’s tariffs in an agile way.
Other factors, including the AI boom and fiscal policies in Europe and China had also helped to prop up the global economy, he said.
But, he warned, “the tariff shock is here, and it is further dimming already weak growth prospects.”
Since returning to office, Trump has imposed sweeping tariffs on top trading partners including China, India and the European Union in a bid to reshape US trading relationships and boost domestic manufacturing.
Over the weekend, the US president threatened fresh tariffs of 100 percent on China, on top of current steep levies, criticizing Beijing’s recent decision to tighten export controls on the rare earth minerals crucial to the defence and high-tech sectors.
The IMF raised its prospects for economic growth for the United States, the world’s largest economy, by 0.1 percent this year and next, to 2.0 percent in 2025, and to 2.1 percent in 2026.
However, this still represents a marked slowdown from 2024, when US growth hit 2.8 percent.
Despite the trade tensions between the world’s two biggest economies, the Fund still expects China’s economy to slow to 4.8 percent this year from 5.0 percent in 2024, before cooling sharply to just 4.2 percent in 2026, in line with previous estimates.
China’s slowdown has been driven by a reduction in net exports, which have been at least partly offset by growing domestic demand fuelled by policy stimulus, the Fund said.
Elsewhere in Asia, the IMF raised India’s 2025 growth forecast to 6.6 percent from 6.4 percent in the last outlook update in July, and hiked its prediction for growth in Japan to 1.1 percent — up 0.4 percentage points.
