According to the International Monetary Fund (IMF), the Russian attack on Ukraine poses a threat to financial stability. The global economy is already weakening and the war will now test the stability of capital markets, IMF expert Tobias Adrian said on Tuesday. . The greatest dangers are in Russia and Ukraine, but several countries around the world are affected by bottlenecks in raw materials and supply chains.
Since the beginning of the year, financing conditions have already significantly tightened in much of the world, particularly in Eastern Europe. However, framework conditions in many countries are still close to their long-term average values.
Future shocks may be more harmful
If the war intensifies and sanctions increase, the IMF believes the risks could suddenly be reassessed. Coupled with the vulnerabilities caused by the corona pandemic, this could trigger a sharp decline in stock market values. “While the financial system has shown resilience to recent shocks, future shocks could be more damaging,” the report said.
From the IMF’s point of view, the involvement of international banks in Russia and Ukraine is relatively manageable. Some European institutes in particular are involved there on a larger scale. However, it remains unclear to what extent financial institutions are indirectly exposed to the consequences of war. Publications about this are quite irregular. The IMF noted that these indirect risks from activities such as investment banking or wealth management or supply chain financing can be significant and, if disclosed, could surprise investors. One area of concern is derivatives. “They are very opaque and it is difficult to know if there are hidden levers,” said Adrian, an expert at the IMF.
From the IMF’s point of view, central banks must rein in the recent sharp rise in inflation. You would have to act decisively. “Interest rate hikes may have to be stronger than the market has priced in,” Adrian said. It should not be forgotten that an overly restrictive monetary policy can also cloud growth prospects in many countries. This is a difficult balancing act. In industrialized countries, central bankers need clear communication about the squeeze to avoid turmoil in the markets.
Europe was initially most severely affected by the war on its own doorstep – due to its high dependence on Russian energy supplies and the commitments of some banks in Russia. Due to the expectation of further interest rate hikes in the US, there is a risk, especially in emerging countries, that investors will suddenly withdraw funds.