Credit crisis losses could reach $1 trillion – IMF

Economic growth, Financial Events, Leverage

Last week the IMF warned there was a 25% chance of a global recession in 2008. Today, it said that the ‘crisis (was) creating serious macroeconomic feedback effects’ and could have ‘profound financial system and macroeconomic implications’.

We normally expect central bankers to weigh their words carefully. But now the IMF has decided to throw caution to the winds in an effort to get its core message across as clearly as possible. Challenging those who believe the crisis is already history, it emphasised that:‘This feedback dynamic is potentially more severe than in earlier credit cycles, as it was fuelled by a proliferation of new credit products that allowed more people to obtain credit. Thus, it is now clear that the current turmoil is more than simply a liquidity event, reflecting deep-seated balance sheet fragilities, which means its effects are likely to be broader, deeper, and more protracted,” it added.

It is also clear about the spread of the problem. It comments that ‘even though the United States remains at the “epicenter,” financial institutions in other countries have also been affected by the current market crisis—reflecting the same overly benign global financial conditions, an inattention to appropriate risk management systems, and lapses in prudential supervision’.

These are powerful statements from a leading central bank. And given the chemical industry’s dependence on housing markets, the Fund’s views on the outlook for housing are particularly worrying – not least because they come as it was reported that UK prices had fallen 2.5% last month.

The Fund says that ‘countries in which house prices have been more inflated or corporate or household balance sheets have been more stretched are particularly at risk’. It therefore calls on governments to prepare ‘contingency plans for dealing with large stocks of impaired assets’. And it warns that losses from the crisis, originally estimated at a ‘mere $100bn’ could now reach at least $1 trillion.

If the IMF feels contingency planning is in order, then clearly it might be wise for chemical companies to follow its advice and develop contingency plans in case a global slowdown impacts their sales and profits.

PREVIOUS POST

The vicious circle

07/04/2008

Paul Tucker of the Bank of England has consistently warned about the dangers pos...

Learn more
NEXT POST

The April Fools Day rally

13/04/2008

There is an extraordinary main feature in this week’s Barron’s, the leading ...

Learn more
More posts
‘Watch out below!’ as supply chain chaos comes to an end
14/11/2021

“What goes up, comes down” is usually a good motto when prices start to reach for the sk...

Read
Industry now needs to step up, if Net Zero is to be achieved
31/10/2021

Net Zero is clearly the key issue of our time. With COP26 about to start, 3 key elements need to com...

Read
The Fed’s stock market bubble is at risk as China bursts its real estate bubble
24/10/2021

The US stock market bubble just keeps rising. And every investor “knows” that the US Fed...

Read
EU patience starts to run out as UK threatens to break the N Ireland Protocol
17/10/2021

Unsurprisingly, it turns out that Brexit still isn’t “oven-ready”, despite the UK ...

Read
An end to the China bubble would risk a Minsky moment
05/10/2021

My letter in today’s Financial Times warning of the risk to Western financial markets from the bur...

Read
Xi aims to “bring order out of chaos” by bursting China’s property bubble
03/10/2021

China is at the start of its biggest economic shake-up since 1978, when Deng Xiaoping launched his p...

Read
The end of China’s real estate bubble will impact global supply chains, exports and growth
26/09/2021

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly....

Read
An Evergrande default could reset the Chinese, and global, economy
19/09/2021

China’s economy has been ‘subprime on steroids’ since the financial crisis in 2008...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more