The IMF believes that the bullish sentiment in financial markets could come to an end. This organization predicts a decrease in the global economy by 5.9% for the rest of the year.
There is a disconnection between financial markets and real-world economy. For that reason, the International Monetary Fund (IMF) warns that there could be a correction of about 10% in them.
Amid the crisis that the COVID-19 pandemic has created and the rise in the prices of risky assets in financial markets, the IMF economic counselor Gita Gopinath commented on the economic statistics of the organization.
Gopinath explained that, due to the health crisis that the coronavirus has caused, the forecast of economic decline fell from 3% in April to 4.9% in June.
However, she noted that, although the health crisis may continue, its solution could also take time. This would have a positive effect on the economy, which should be progressively measured in the following months, as events develop.
In recent days, the IMF published the World Financial Stability Report, in which it indicates that the price of risk assets has reemerged since the beginning of the year. They note that the disconnection between financial markets and the real economy poses risks to economic recovery.
The world’s central banks and major financial institutions are issuing economic stimuli. These could make the management of the internal debt of countries and national corporations unsustainable, according to the document.
In this sense, the report mentions that the European Central Bank has bought government bonds, within the framework of a recent USD 1.5 trillion emergency program. This program seeks to oxygenate the payment of the debt of the governments of the eurozone.
Likewise, they state that economic insolvency could also affect non-bank financial entities, such as stock investment advisers and managers. Gopinath warns that the poor performance of these businesses could make the world’s economic crisis worse.
Bitcoin among Riskiest Performing Assets
For the first time in its history, Bitcoin outperformed the S&P 500 last March. Since then, both Bitcoin and the stock indicator have recovered after their price declined at the beginning of the year. Bitcoin also exceeded gold as the highest performing asset of 2020, last May.
The levels in the trading volume of Bitcoin on p2p platforms reached all-time levels. At the same time, the huge number of new users of platforms like Robinhood is putting markets at risk of having a price bubble.
The S&P 500 also maintained a 50-day upward trend until early June, making it the longest streak in its history. The stock market index interprets this trend as a sign of the hypothetical disconnection between financial markets and the real world.
The quarantine and social distancing measures have led to the paralysis of employment and economic activities for many people worldwide. This suggests that an increasing number of people are seeking financial alternatives or methods to generate income.
In addition to each user’s initiative, companies have made available to users the possibility of freely exchanging all kinds of assets. This is the case of Uphold, which already allows buying shares of American companies with Bitcoin from Latin America.
By Alexander Salazar
