No sign of credit crunch easing say IMF
In its latest global financial stability report, the International Monetary Fund (IMF), said the global credit crunch is showing no signs of abating.
Credit is being hit by falling house prices and slowing economic growth, according to the report. The IMF warned that banks are experiencing renewed stress, as well as further cutbacks in bank lending which could deepen the slowdown.
The report comes as the one-year anniversary approaches when global financial markets froze last August.
Three months ago, the IMF warned that banks and other financial institutions could lose $1 trillion (£503 billion) as a result of the credit crisis and it is still sticking to that prediction. It also said house prices are 30% too high in the UK and could soon collapse.
Furthermore, the report by the IMF says that emerging markets such as China and India could suffer more pain in the long-term as a result of the credit crunch.
If emerging market country growth slows down, the IMF suggests that the slowdown will be more prolonged into 2009 than previously anticipated.
China and India are both projected to grow much faster than the old industrial countries, like many others, they are both raising interest rates to curb rising inflation and their exports are being hit by a rising currency.
Meanwhile, the banking systems in China and India are facing renewed pressure, their nascent stock markets have suffered significant volatility, with China’s main Shanghai index falling by 50% since the start of the year.
The IMF also warns that credit risks in the US are spreading from sub-prime lending to other types of mortgages and to all other major credit categories, including car loans and credit card loans.
In the report, the IMF expressed concern about the crisis that has hit the US government-sponsored mortgage lenders, Fannie Mae and Freddie Mac, which fund half of all US mortgages.