Chinese policymakers urgently need to reduce risks in the banking sector and use fiscal policy to defuse the effects of the trade war to rebalance the economy for the long term, said the International Monetary Fund (IMF), reported Caixin.
Twists and turns of trade disputes and financial vulnerabilities stemming from persistent policy easing pose downside risks to the global economy, the IMF said in its latest Global Financial Stability Report and Fiscal Monitor reports issued Wednesday.
Trade tensions have continued to buffet financial markets and weaken business sentiment over the past six months, added the IMF. While easier financial conditions have supported economic growth and helped contain downside risks to the outlook for the near term, they have also encouraged more financial risk-taking and a further buildup of financial vulnerabilities, putting medium-term growth at risk, said the IMF.
“Policymakers should lean against the buildup of vulnerabilities by deploying and developing macroprudential tools as warranted and by maintaining stringent financial supervision,” the fund said.