Front Matter

Front Matter

International Monetary Fund. Monetary and Capital Markets Department
Published Date:
April 2018
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    World Economic and Financial Surveys

    Global Financial Stability Report

    April 2018

    A Bumpy Road Ahead

    © 2018 International Monetary Fund

    Cover and Design: Luisa Menjivar and Jorge Salazar

    Composition: AGS, An RR Donnelley Company

    Cataloging-in-Publication Data

    Joint Bank-Fund Library

    Names: International Monetary Fund.

    Title: Global financial stability report.

    Other titles: GFSR | World economic and financial surveys, 0258–7440

    Description: Washington, DC : International Monetary Fund, 2002- | Semiannual | Some issues also have thematic titles. | Began with issue for March 2002.

    Subjects: LCSH: Capital market—Statistics—Periodicals. | International finance—Forecasting—Periodicals. | Economic stabilization—Periodicals. Classification: LCC HG4523.G557

    ISBN 978-1-48433-829-2 (Paper)

    • 978-1-48434-876-5 (ePub)
    • 978-1-48434-878-9 (Mobipocket)
    • 978-1-48434-877-2 (PDF)

    Disclaimer: The Global Financial Stability Report (GFSR) is a survey by the IMF staff published twice a year, in the spring and fall. The report draws out the financial ramifications of economic issues highlighted in the IMF’s World Economic Outlook (WEO). The report was prepared by IMF staff and has benefited from comments and suggestions from Executive Directors following their discussion of the report on April 2, 2018. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.

    Recommended citation: International Monetary Fund. 2018. Global Financial Stability Report: A Bumpy Road Ahead. Washington, DC, April.

    Please send orders to:

    International Monetary Fund, Publications Services

    P.O. Box 92780, Washington, DC 20090, U.S.A.

    Tel.: (202) 623–7430 Fax: (202) 623–7201



    Assumptions and Conventions

    The following conventions are used throughout the Global Financial Stability Report (GFSR):

    … to indicate that data are not available or not applicable;

    — to indicate that the figure is zero or less than half the final digit shown or that the item does not exist;

    – between years or months (for example, 2016–17 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

    / between years or months (for example, 2016/17) to indicate a fiscal or financial year.

    “Billion” means a thousand million.

    “Trillion” means a thousand billion.

    “Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    If no source is listed on tables and figures, data are based on IMF staff estimates or calculations.

    Minor discrepancies between sums of constituent figures and totals shown reflect rounding.

    As used in this report, the terms “country” and “economy” do not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

    The boundaries, colors, denominations, and any other information shown on the maps do not imply, on the part of the International Monetary Fund, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries.

    Further Information

    Corrections and Revisions

    The data and analysis appearing in the Global Financial Stability Report are compiled by the IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary (see below). All substantive changes are listed in the online tables of contents.

    Print and Digital Editions

    Print copies of this Global Financial Stability Report can be ordered at

    The Global Financial Stability Report is featured on the IMF website at This site includes a PDF of the report and data sets for each of the charts therein.

    The IMF eLibrary hosts multiple digital editions of the Global Financial Stability Report, including ePub, enhanced PDF, Mobi, and HTML:

    Copyright and Reuse

    Information on the terms and conditions for reusing the contents of this publication are at


    The Global Financial Stability Report (GFSR) assesses key risks facing the global financial system. In normal times, the report seeks to play a role in preventing crises by highlighting policies that may mitigate systemic risks, thereby contributing to global financial stability and the sustained economic growth of the IMF’s member countries.

    The analysis in this report has been coordinated by the Monetary and Capital Markets (MCM) Department under the general direction of Tobias Adrian, Director. The project has been directed by Fabio Natalucci and Dong He, both Deputy Directors, as well as by Claudio Raddatz and Anna Ilyina, both Division Chiefs. It has benefited from comments and suggestions from the senior staff in the MCM Department.

    Individual contributors to the report are Ali Al-Eyd, Adrian Alter, Sergei Antoshin, Anil Ari, Magally Bernal, Christian Bogmans, Luis Brandão-Marques, Peter Breuer, Jeroen Brinkhoff, John Caparusso, Qianying Chen, Sally Chen, Yingyuan Chen, Kevin Chow, Fabio Cortes, Jane Dokko, Dimitris Drakopoulos, J. Benson Durham, Martin Edmonds, Alan Xiaochen Feng, Rohit Goel, Tryggvi Gudmundsson, Hideo Hashimoto, Sanjay Hazarika, Frank Hespeler, Henry Hoyle, Mohamed Jaber, David Jones, Mitsuru Katagiri, Will Kerry, Oksana Khadarina, Ashraf Khan, Divya Kirti, Robin Koepke, Romain Lafarguette, Jiaqi Li, Yang Li, Sheheryar Malik, Rebecca McCaughrin, Aditya Narain, Tomas Piontek, Jochen Schmittmann, Dulani Seneviratne, Juan Solé, Ilan Solot, Nour Tawk, Jérôme Vandenbussche, Jeffrey Williams, Peichu Xie, and Akihiko Yokoyama. Magally Bernal, Claudia Cohen, Breanne Rajkumar, and Han Zaw were responsible for word processing.

    Gemma Diaz from the Communications Department led the editorial team and managed the report’s production with support from Linda Kean and editorial assistance from Sherrie Brown, Lucy Scott Morales, Nancy Morrison, Katy Whipple, AGS, and Vector Talent Resources.

    This particular issue of the GFSR draws in part on a series of discussions with banks, securities firms, asset management companies, hedge funds, standard setters, financial consultants, pension funds, central banks, national treasuries, and academic researchers.

    This GFSR reflects information available as of March 30, 2018. The report benefited from comments and suggestions from staff in other IMF departments, as well as from Executive Directors following their discussion of the GFSR on April 2, 2018. However, the analysis and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or their national authorities.


    Starting with this report, Chapter 1 of the Global Financial Stability Report (GFSR) will regularly provide a quantitative assessment of the degree to which future GDP growth faces downside risks from financial vulnerabilities, using a Growth-at-Risk (GaR) framework. The GaR approach links financial conditions to the distribution of future GDP growth outcomes and provides a framework for assessing the trade-off between supporting growth in the short term and putting financial stability and future growth at risk over the medium term. Our current assessment through the prism of GaR is that, over the past six months, short-term downside risks to global financial stability have increased somewhat, reflecting somewhat tighter financial conditions amid investors’ concerns about newly announced trade measures. Even so, still-accommodative financial conditions continue to be supportive of economic growth. Taking a longer view, downside risks, as measured by GaR, remain large: easy financial conditions continue to fuel financial vulnerabilities, leaving the global economy exposed to the risk of a sharp tightening in financial conditions. Policymakers thus face the twin challenges of continuing to support growth in the short term by keeping monetary policy accommodative as well as reining in rising financial stability risks in the medium term by deploying micro- and macroprudential policy tools.

    Managing the gradual process of monetary policy normalization will be tricky against this backdrop of elevated medium-term risks, and will require careful communication from central banks and policymakers to reduce the risks from a sharp tightening of financial conditions. The spike in volatility in global equity markets in early February has brought into focus the risk of abrupt, adverse feedback loops in a period of asset price adjustments. The recently increased trade tensions have led to investors’ jitters, and a wider escalation of protectionist measures could ultimately take a toll on the global economy and on global financial stability. Many markets still have stretched valuations, and may experience bouts of volatility in the period ahead, in the context of continued monetary policy normalization in some advanced countries. Investors and policymakers should be cognizant of the risks associated with rising interest rates after years of very easy financial conditions and take active steps to reduce these risks. Asset price spillovers have important implications for the housing market. As explained in Chapter 3, house price correlations across countries and across major cities have been trending up during the past 30 years, suggesting that spillovers via the housing sector may play a prominent role in a future crisis.

    A variety of indicators point to vulnerabilities from financial leverage, a deterioration in underwriting standards, and ever more pronounced reaching for yield behavior by investors in corporate and sovereign debt markets around the world. Chapter 2 presents an innovative gauge of the riskiness of credit allocation. The new metric computes the difference in vulnerability between the firms with the largest and smallest expansions in debt. This indicator exhibits strong forecasting power for downside risks to GDP growth, and is currently at medium to elevated levels in several countries. A host of more conventional metrics of corporate debt vulnerability around the world, including a deterioration in nonprice terms and underwriting standards in debt deals, suggest that market risks are rising, as easy financial conditions support high issuance and strong global capital flows. In low-income countries, the share of private and non–Paris Club creditors is increasing, and greater use of collateralized debt exposes borrowing countries to potentially costly debt restructurings in the future.

    Over the past year, crypto assets trading has emerged as a new potential vulnerability. Price volatility of crypto assets has been much higher than that of commodities, currencies, or stocks. Financial stability risks could arise from leveraged positions taken by investors in this new asset class, infrastructure weaknesses of cryptocurrency exchanges, and fraud, in addition to elevated volatility. Regulators around the world are responding to the growing use of crypto assets through various measures, including enforcement actions, indirect interventions via the banking system, and outright bans. While crypto assets may generate new vulnerabilities, they also create opportunities and, indeed, a number of central banks around the world are considering the issuance of central bank digital currency.

    Tobias Adrian

    Financial Counsellor

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