The International Monetary Fund said today financial markets will likely remain resilient, although there are significant risks to the outlook including concerns about the global economic recovery.
"While the resilience so far manifest in markets is likely to continue, there remain significant downside risks," the IMF said in its quarterly Global Financial Stability Report.
"While a global recovery has been under way, concerns about its pace and sustainability have risen significantly. There is a risk that further substantial market declines could undermine growth prospects," the report added.
The IMF said that given the precarious nature of the recovery, it was important to maintain the financial resilience of the US household sector and the financial sector in Europe. It said the ability of Japan to withstand further sluggish economic growth "remains uncertain."
The report highlighted several risks to the outlook, particularly the risk of further declines in financial markets, which "cannot be ruled out if risk perception were to increase or if corporate revenues fail to grow." The report noted that third quarter improvements in corporate profits were due to cost-cutting measures and that revenue growth was needed to underpin October's stock market recovery.
The report said further declines in stocks could erode US household and European financial company balance sheets and undercut the profits of some companies. Increased risk aversion among financial institutions was another risk to the outlook.