International Monetary Fund (IMF) said in a report on Monday that major geopolitical risk events, including a trade war, can lead to a "substantial" decrease in stock prices and pose a risk to macrofinancial stability.
"Stock prices can decrease, and sovereign risk premiums can increase meaningfully after major geopolitical risk events, notably international military conflicts. Moreover, the analysis suggests that countries with limited fiscal and international reserve buffers are particularly vulnerable to a rise in sovereign risk premiums," IMF said in the second chapter of its Global Financial Stability Report, noting that such risks "adversely affect the stability and intermediation capacity of banks and non-bank financial institutions, such as investment funds" and can raise market volatility.
IMF's Managing Director Kristalina Georgieva previously warned that United States President Donald Trump's tariffs pose a "significant" risk to the global outlook, and called for avoiding "steps that could futher harm the world economy."
