Stark warnings from many sources are being voiced about the potential costs to the global economy of hawkish central bank actions. These are showing up in the evidence coming through that reveals worrying financial stresses. The fourth quarter is thus ...
As we head into the final quarter of the year, warnings abound of the many tail risks — or potential black swans — that could further derail financial markets and impose lasting damage on the global economy.
The ESRB issued an official general warning on the vulnerabilities in the European Union financial system in late September, saying that the probability of tail-risk scenarios materialising had increased since the beginning of 2022 — but had been exacerbated by recent political developments. Balance sheet stress for non-financial corporations and households, brought on by the deterioration in the macroeconomic outlook combined with the tightening of financing conditions.
The board says these tail-risk scenarios could play out if there is a further escalation in geopolitical tensions and would depend on the extent and duration of the economic downturn and the persistence of high inflation. They could also materialise simultaneously, “thereby interacting with each other and mutually amplifying their impact”.
As the supply of commodities, labour and key intermediate inputs improves, which is generally expected, Brainard says it will become easier to resolve the imbalances. Releasing its 2022 Trade and Development Report, UNCTAD Secretary-General Rebeca Grynspan stressed that there is still time to step back from the edge of recession and urged governments and policymakers in developed economies to:
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