Washington (awp / afp) – Markets seem “out of touch” with economic reality, reaching peaks despite global recession caused by the Covid-19 pandemic, and could face severe correction, warned the International Monetary Fund on Thursday .
The main stock markets have rebounded since their trough in March, “recovering overall about 85% of their average level in mid-January,” he said in his latest report on global financial stability (GFSR).
“In the midst of the human tragedy and the economic recession caused by the pandemic, the recent increase in risk appetite in the financial markets has caught the attention of analysts”, summarize in a blog Tobias Adrian, financial advisor of the IMF, and Fabio Natalucci, head of GFSR.
They are worried that investors seem to be betting on “solid and lasting aid from central banks that will support a rapid recovery, even if the economic data indicates a deeper recession than expected”.
The IMF warned on Wednesday that the global recession in 2020 would be more severe than estimated in April (-4.9%) and it observes a slower recovery than expected at the start of the third quarter.
“This divergence raises the specter of a further correction of the prices of risky assets if the attitude of investors changes, threatening the recovery,” they add.
It was in mid-March that on Wall Street the star index, the Dow Jones, entered the bear market, ie a downward trend, losing more than 30% compared to its last record.
But from the end of March / beginning of April, the indices started to rise sharply. The increase has since been almost uninterrupted despite small lows in mid-April, mid-May and early June.
“Unprecedented” and “unconventional” support from authorities who deployed cash, loans and low interest rates, “has undoubtedly cushioned the impact of the pandemic on the world economy and mitigated the immediate danger to the system financial institution “, according to GFSR.
But corporate debt, which was already high before the pandemic, after a decade of low interest rates, has now reached “historically high levels” and household debt is also increasing, which could create problems if borrowers are unable to repay in a context of slow recovery, notes the report.
While aid from governments and central banks was essential to avoid even greater waves of layoffs and bankruptcies, the ease of obtaining credit could lead to “perverse effects”, they warn.
afp / buc
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