Chapter 1: Financial Stability in the New High-Inflation Environment
Financial stability risks have increased amid the highest inflation in decades and the ongoing spillovers from Russia’s war in Ukraine to European and global energy markets. Amid poor market liquidity, there is a risk that a sudden, disorderly tightening in financial conditions may interact with preexisting vulnerabilities. In emerging markets, rising rates, weak fundamentals, and large outflows have pushed up borrowing costs, particularly for frontier economies, with a heightened risk of additional defaults. In China, the property downturn has deepened as sharp declines in home sales have exacerbated pressures on developers, with heightened risks of spillovers to the financial sector.
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