The International Monetary Fund warned that global economic risks have risen as central banks reduce borrowing costs and that stronger oversight is needed to ease threats to an already shaky expansion.
"While easier financial conditions have supported economic growth and helped contain downside risks to the outlook in the near term, they have also encouraged more financial risk-taking and a further buildup of financial vulnerabilities, putting medium-term growth at risk," the IMF said Wednesday in its latest Global Financial Stability Report.
The policy easing that has helped support global growth has also fueled a further increase of financial risks, and threats to global growth and financial stability remain "firmly skewed to the downside," the fund said. It added that policymakers "urgently need to take action to tackle financial vulnerabilities that could exacerbate the next economic downturn."
The latest warnings come a day after the fund said global growth is on pace for the weakest expansion since 2009, when the world economy shrank, as trade wars cloud the outlook. Those disputes have whipsawed global markets and weighed on business sentiment, though central bank easing has helped alleviate concerns about a deeper economic slowdown, the report said.
The fund said lower yields are spurring investors such as insurance companies and pension funds "to invest in riskier and less liquid securities" and that pricing in financial markets signals interest rates will remain lower for longer than anticipated at the start of this year. About $15 trillion of debt worldwide has negative yields, it said.
"Vulnerabilities have continued to intensify, putting growth at risk," Tobias Adrian, director of the monetary and capital markets department, told reporters Wednesday at a briefing, adding that policymakers need to prevent a rollback of regulatory reforms.
While there's been significant progress on banking regulations, capital standards and liquidity levels since the crisis, trade policy is a new threat for stability, he said.
Trade tensions have fueled pessimism in markets, creating uncertainty and repeatedly causing "downside risks," Mr. Adrian said. "So we urge policymakers around the world to work together to resolve those trade tensions."
Officials emphasized that companies are taking on more debt and their ability to service that debt is deteriorating.
"There are quite a few weak non-financial firms in these economies that are still able to roll over debt and continue to accumulate debt because of very low interest rates" Anna Ilyina, a division chief in the monetary and capital markets department, told reporters at the briefing.