Financial Fragilities Along the Last Mile of Disinflation
Financial Fragilities Along the Last Mile of Disinflation

Summary/Abstract: Expectations that global disinflation is entering its „last mile” and monetary policy will be easing have driven up asset prices worldwide since the October 2023 Global Financial Stability Report. Many emerging markets have shown resilience, and some frontier economies have taken advantage of buoyant risk appetite to issue international debt. The global economy appears increasingly likely to achieve a soft landing, and cracks in the financial system exposed by high interest rates have not ruptured further. Near-term global financial stability risks have receded, according to the IMF’s growth-at-risk framework. However, there are several salient risks along the last mile. Growing strains in the commercial real estate sector and signs of credit deterioration among corporates and in some residential housing markets could be exacerbated by adverse shocks. Stalling disinflation could surprise investors, leading to a repricing of assets and a resurgence of financial market volatility, which has been low despite considerable economic and geopolitical uncertainty. Beyond these more immediate concerns, other medium-term vulnerabilities are building, notably the continued accumulation of debt in both public and private sectors. Some governments may find it difficult to service debt in the future, whereas the private sector’s leveraged exposures to financial assets may foretell elevated financial stability risks in the coming years.

• Details
• Contents