Global financial stability report

Si Gyeongmin

Jul 27, 2021

The outbreak of COVID-19 has triggered an unprecedented global economic crisis. The World Economic Outlook predicted that the global economy will shrink sharply in 2020. Although growth is expected to rebound in 2021, global output levels will remain below pre-crisis levels within a few years. Despite the occurrence of a global economic crisis comparable to the Great Depression, with the help of unprecedented monetary policy relaxation and large-scale financial support on a global scale, the recent financial stability risks have been contained. The rapid, active and extensive economic policy response contained the expansion of losses and built a "bridge" for economic recovery.

The central bank eased global monetary policy. So far, the balance sheet of the G10 has expanded by nearly 7.5 trillion US dollars. The rebound in asset prices and the relaxation of global financial conditions have benefited not only developed economies, but also emerging markets. This time, emerging markets were able to respond by lowering policy interest rates, injecting liquidity, and adopting asset purchase plans for the first time. About 20 emerging market central banks deployed asset purchase plans for the first time. In addition, the global financial policy of 12 trillion US dollars has provided substantial support to households and enterprises. These extraordinary policy measures have stabilized the market, raised investor sentiment, and maintained the credit flow to the global economy. It is crucial that these measures help prevent the destructive vicious circle caused by the economic slowdown and the declining financial market from interacting with each other. Although the risk of global financial stability has been controlled for the time being, some sectors (asset management, non-financial enterprises, and sovereign sectors) in many countries have been vulnerable before the outbreak of the epidemic, and these vulnerabilities are increasing, which has become a potential obstacle to economic recovery.

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