Global Financial Stability Report, October 2024 - Steadying the Course: Uncertainty, Artificial Intelligence, and Financial Stability
Global Financial Stability Report, October 2024
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- Published: October 22, 2024
Overall assessment and key highlight
- Financial stability risks remain contained in the near term, although rising economic and geopolitical uncertainty increases the likelihood of adverse shocks, exposing fragilities.
- Accommodative financial conditions have remained in place with an expectation that monetary policy will continue to ease globally; on net, emerging markets have remained resilient and asset price volatility has stayed low.
- Accommodative conditions that keep near-term risks contained also facilitate the buildup of vulnerabilities, including:
- lofty asset valuations,
- the global rise in private and government debt,
- increased use of leverage by nonbank financial institutions.
- The widening disconnect between elevated economic uncertainty and low financial volatility increases the probability that adverse shocks will be amplified by these mounting vulnerabilities.
- Pressures on the commercial real estate sector remain acute, and some midsized companies' borrowings are becoming increasingly strained.
- The slowing growth outlook in China, together with fragilities in its financial system, is identified as a key downside risk to the global economy.
- Policymakers face urgency to address these vulnerabilities.
Chapter 1 — Steadying the Course: Financial Markets Navigate Uncertainty
- Near-term financial stability risks have remained contained, but mounting vulnerabilities could worsen future downside risks by amplifying shocks.
- Financial conditions: accommodative, with expectations of continued monetary policy easing globally.
- Observed resilience: emerging markets have remained resilient; asset price volatility has stayed low, on net.
- Key vulnerabilities highlighted:
- lofty asset valuations,
- global rise in private and government debt,
- increased use of leverage by nonbank financial institutions,
- strained borrowings of some midsized companies,
- acute pressures in the commercial real estate sector.
- Amplification mechanism: the widening disconnect between elevated economic uncertainty and low financial volatility increases the probability that shocks will be amplified.
- Downside external risk: slowing growth outlook in China and fragilities in its financial system may constrain access to funding for economies with weaker fiscal buffers.
Chapter 2 — Macrofinancial Stability Amid High Global Economic Uncertainty
- Context: uncertainty regarding global economic outcomes and policies has been higher since the COVID-19 pandemic amid inflation shocks, rising geopolitical tensions, emerging technologies, and climate-related disasters.
- Main finding: high macroeconomic uncertainty can significantly raise downside tail risks to future output growth, asset prices, and bank lending growth.
- Conditional strengths of the relationships:
- The relationship between macroeconomic uncertainty and downside tail risks is stronger when debt vulnerabilities are elevated.
- The relationship is stronger when financial market volatility is low (during episodes of a macro-market disconnect).
- Cross-border effects: macroeconomic uncertainty can trigger cross-border spillover effects through trade and financial linkages.
- Policy responses and resilience measures recommended:
- more credible policy frameworks,
- building resilience through adequate macroprudential policies and reserve buffers,
- reducing fiscal vulnerabilities.
Chapter 3 — Advances in Artificial Intelligence: Implications for Capital Market Activities
- Scope: assesses recent developments in AI and Generative AI and their implications for capital markets using new analytical work and results from a global outreach to market participants and regulators.
- Adoption signals: evidence from labor markets and patent filings suggests that adoption of AI in capital markets is likely to increase significantly in the near future.
- Potential market-structure effects:
- AI could cause large changes in market structure through the greater and more powerful use of algorithmic trading and novel trading and investment strategies.
- Potential benefits:
- enabling superior risk management,
- deepening market liquidity,
- improving market monitoring by both participants and regulators.
- Potential new risks:
- increased market speed and volatility under stress,
- more opacity and monitoring challenges of non-bank financial institutions,
- increased operational risks due to reliance on a few key third-party AI-service providers,
- increased cyber and market manipulation risks.
- Regulatory stance:
- Many of these risks are addressed by existing regulatory frameworks,
- Important new and unforeseen developments may still arise.
- Suggested stance for authorities: consider additional policy responses to ensure preparedness for potentially transformative changes.
Global Financial Stability Report, October 2024 — Steadying the Course: Uncertainty, Artificial Intelligence, and Financial Stability
Content in this bundle
- Chapter 1 Data
- Chapter 2 Data
- Chapter 1 at a Glance
- Chapter 2
- Chapter 2 Annex
- Global Financial Stability Report, October 2024; Chapter 2 Summary
- Chapter 3
- Chapter 3 Annex
- Global Financial Stability Report, October 2024; Chapter 3 Summary
- Executive Summary
- Foreword
- Global Financial Stability Report, October 2024; Infographic; October 22, 2024
- Textrevised
References
- Previous Issues
- Blog by IMF Financial Counsellor Tobias Adrian
- Press Conference
- Transcript
- https://origin-blogs.imf.org/en/blogs/articles/2024/10/15/how-high-economic-uncertainty-may-threaten-global-financial-stability
- Replay the Event
- https://origin-blogs.imf.org/en/blogs/articles/2024/10/15/artificial-intelligence-can-make-markets-more-efficient-and-more-volatile
- Replay the Event