IMF warns geopolitical risks can lead to stock market corrections

The International Monetary Fund (IMF) warned that major geopolitical risks, including trade disputes, might lead to substantial corrections in stock prices. Accordingly, this could generate market volatility that threatens financial stability.

The IMF did not mention specific events, such as the recent tariffs imposed by US President Donald Trump. However, it pointed to the risk events such as wars, diplomatic tensions, or acts of terrorism, which have significantly increased since 2022.

The IMF’s assertion came in a chapter from its upcoming Global Financial Stability Report, stating that significant risk events such as wars, diplomatic tensions, or acts of terrorism can cause stock prices to decrease by an average of 1% monthly across all nations.

Additionally, the IMF supported the use of stress tests and other analyses to identify and manage geopolitical risks, urging financial institutions to keep adequate capital and liquidity to assist them deal with any losses.