The International Monetary Fund reports that the global credit crunch shows no signs of abating in its latest financial stability report. The IMF report indicates that falling house prices and slowing economic growth around the globe are hitting credit hard, as banks are under increasing pressure.
“Credit quality across many loan classes has begun to deteriorate with declining house prices and slowing economic growth. Although banks have succeeded in raising additional capital, balance sheets are under renewed stress and bank equity prices have fallen sharply,” the IMF’s Global Financial Stability Report Market Update notes.
“At the same time, policy trade-offs between inflation, growth, and financial stability are becoming increasingly difficult. The resilience of emerging markets to the global turmoil is being tested as external financing conditions tighten and policymakers face rising inflation,” it added.
Banks have been fairly successful in raising capital in response to the credit crisis until now, but it will be difficult to raise additional capital as the global economy slows in the coming year. The IMF expects global growth to slow from 5% in 2007 to 4.1% in 2008 and 3.9% in 2009, according to the recently released World Economic Outlook.
Housing prices have suffered in both the US and many European economies, leading to concerns over future losses for banks and lenders, as well as a continued slowdown in construction and real estate sectors. The problems highlight the need for investors to make sure their financial positions are secure as they look for investments at home and abroad. It also indicates a need to do all the necessary homework on any potential property investments as one moves forward.
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