## MACROFINANCIAL STABILITY AMID HIGH GLOBAL ECONOMIC UNCERTAINTY — Chapter 2

## Source details

**Canonical URL:** [MACROFINANCIAL STABILITY AMID HIGH GLOBAL ECONOMIC UNCERTAINTY — Chapter 2](https://www.imf.org/-/media/files/publications/gfsr/2024/october/english/ch2sum.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/gfsr/2024/october/english/ch2sum.pdf.md)
- [Structured JSON version](/-/media/files/publications/gfsr/2024/october/english/ch2sum.pdf.json)

---

### Key context and scope
- A high level of uncertainty has characterized the global macroeconomic landscape since the COVID-19 pandemic, possibly amid inflation shocks, escalating geopolitical tensions, rapidly emerging new technologies, and increasing climate-related risks.
- Analysis draws on a sample of 43 advanced and emerging market economies.

### Channels through which macroeconomic uncertainty affects macrofinancial stability
- Market channel: High uncertainty can exacerbate downside market tail risks amid an adverse shock.
- Real channel: Uncertainty can delay private sector consumption and investment decisions, slowing economic activity and increasing credit risks for financial institutions, potentially triggering an adverse macrofinancial feedback loop.
- Credit channel: Uncertainty can decrease the availability of domestic credit by worsening the information gap between lenders and new borrowers about their creditworthiness and by increasing the risk in existing loan portfolios.

### Main empirical findings
- High macroeconomic uncertainty can significantly exacerbate downside tail risks to GDP growth, particularly in countries with large existing vulnerabilities, such as excessive leverage in the private and public sectors.
- High macroeconomic uncertainty worsens the intertemporal trade-off posed by an easing of financial conditions: easing boosts GDP growth in the short term but encourages a buildup of vulnerabilities that exacerbate downside tail risks to GDP growth in the medium term—this effect is especially acute when financial market volatility is low (a “macro-market disconnect”).
- Market tail risks and bank lending are important channels through which economic uncertainty can amplify downside tail risks to GDP growth.
- Macroeconomic uncertainty can spill over across borders due to global financial and economic interconnectedness.

### Policy implications and recommendations
- Reduce domestic macroeconomic uncertainty by building credible policy frameworks and improved communication strategies.
- Build resilience against macrofinancial vulnerabilities, particularly when macroeconomic uncertainty is high:
  - Implement adequate macroprudential policies amid easy financial conditions.
  - Contain the buildup of high public debt relative to GDP.
- Maintain adequate international reserve buffers and exchange rate flexibility to mitigate downside risks from increases in foreign macroeconomic uncertainty.
- Devote resources to quantifying, managing, and mitigating the risks from rising geopolitical uncertainty on macrofinancial stability.

*Source: https://www.imf.org/-/media/files/publications/gfsr/2024/october/english/ch2sum.pdf*

---


_Source: https://www.imf.org/-/media/files/publications/gfsr/2024/october/english/ch2sum.pdf_