## Chapter 1 — Global Financial Stability Overview: Markets in the Time of COVID-19

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### A precipitous fall in risk asset prices
- Peak to Trough changes in asset prices compared COVID-19 epidemic and the Global Financial Crisis, showing a precipitous fall in risk asset prices.
- Financial conditions tightened sharply, at unprecedented speed:
  - Global Financial Conditions Indices measured in standard deviations from mean (IMF staff calculations) indicate an abrupt and unprecedented tightening even compared to the global financial crisis.
- Falling equity prices and widening corporate spreads were only partially offset by declines in interest rates across most advanced and emerging market economies.

### Global growth and downside risks
- Near-Term (2020) growth forecast distribution shifted dramatically left due to tighter global financial conditions and a significant downward revision of the 2020 global growth forecast (IMF staff calculations).
- The one-year-ahead forecast distribution based on economic and financial conditions as of March 2020 indicates a 5 percent probability that global growth could fall below -7.4 percent.

### Emerging market flows and reversals
- Emerging market economies experienced the sharpest portfolio flows reversal on record:
  - About $100 billion in cumulative nonresident portfolio outflows.
  - Equivalent to about 0.4 percent of their GDP (based on daily observations; sources: Institute of International Finance; IMF staff calculations).
- The size and breadth of outflows—in terms of the number of affected countries—was the largest since the global financial crisis.

### Credit markets and high-yield stress
- High-yield spreads skyrocketed since early March, particularly in sectors most affected by the pandemic outbreak.
- Risks of a sudden stop in credit markets are elevated as default rates climb, especially in risky segments such as high yield, leveraged loan, and private debt markets.
- These risky credit markets have expanded rapidly since 2008, reaching $9 trillion globally, while borrowers’ credit quality, underwriting standards, and investor protections have weakened.

### Bank capitalization and sector resilience
- Market-adjusted measures of bank capitalization have worsened significantly:
  - Large declines in bank equity prices suggest investor concerns about profitability and prospects for the banking sector.
  - Measures of bank capitalization based on market prices are now worse than during the 2008 global financial crisis in many countries.
- Banks and other financial intermediaries may act as amplifiers should the crisis deepen further.

*Source: Global Financial Stability Report April 2020 — Chapter 1 summary (IMF).*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2020/april/english/brochure.pdf_