The COVID-19 pandemic and its related economic decline have led to a significant correction in the stock market that has stabilized through regular fiscal and financial policy measures through governments around the world.
But there is a genuine monetary disconnect between the stock market and the economy, and if the disconnection can simply be reduced if an immediate and sustainable economic recovery materializes, the opposite may happen if the economic recovery is delayed because it takes longer to achieve economic recovery. COVID-19 under control, the IMF warned on Tuesday.
“As long as investors continue to gain political support in the markets, asset valuations may remain high for some time. However, and especially if the economic recovery is delayed, there is a threat of a sharp adjustment in asset costs or periodic episodes. “, said the IMF.
And while these policies have avoided a convulsion in money markets and helped accelerate the economic recovery, there are still domino effects that investors are watching closely, according to the IMF.
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“Vulnerabilities in the business sector are the main ones and are increasing. “
A build-up of corporate debt to help stop the economic effect of COVID-19 has only added to an already record amount of corporate debt, the IMF said. The companies that are more indebted have certainly helped stop a wave of bankrupts. however, these bankruptcies could have been delayed, they would not have been absolutely avoided.
“The resistance of the banks will be tested. “
Post-recession banking regulations helped prepare them for current economic crises, allowing them to be a component of the solution that challenges by offering credits to families and businesses.
But according to an IMF analysis, in a declining economy, “some banking systems would likely suffer giant capital shortfalls because many businesses and families will not repay their loans. “
Faced with prolonged economic decline, most likely due to a prolonged pandemic of COVID-19, the IMF advocates a number of policy recommendations.
Once the pandemic is under control, “a strong monetary reform schedule can focus on rebuilding bank capital mattresses, strengthening the regulatory framework for non-bank monetary establishments, and intensifying prudential oversight to involve superior risk-taking in a “lower interest” for a longer “rate environment,” the IMF concluded.
Investors’ fear of an imaginable extended COVID-19 pandemic may have been exacerbated Tuesday after Johnson
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