Credit risks may not be accurately priced in, IMF warns

International financial investors may be underestimating risks, the International Monetyary Fund (IMF) warned overnight in a document prepared in the run-up to this weekend´s meeting of the G-20 finance ministers.

Yes, expansionary monetary policies in the developed world are supporting global growth prospects. Yet that also has the effect of buoying markets where the outlook for the economy may even be weakening. Hence, credit risks may not be accurately priced into securities markets.

That is potentially significant as the US central bank, the Federal Reserve, moves closer to raising interest rates, the Washington D.C.-based lender added.

“While the recovery is projected to regain some strength in the remainder of 2014 and 2015, it would be weaker than foreseen in the spring,” wrote staff economists at the Fund.

In April the IMF estimated that the world economy would grow at 3.6% clip this year. To be kept in mind however, any pace below 2% is often considered to be synonymous with a global recession.