World economy stable, IMF says

The world economy held firm over the summer, weathering a bevy of concerns from poor corporate profits to future terrorism, a new report has found.

Steps to rebuild confidence are needed to restore calmer financial markets and maintain financial stability

IMF report

However, investor sentiment continued to sour in the three months to the end of September because of big losses on global stock markets, the International Monetary Fund (IMF) said.

It is a trend that started with the burst in technology shares in March 2000.

"The cumulative impact of market declines in recent years has weakened balance sheets of financial institutions, corporation and households, increasing their vulnerability to further asset-price declines," said the IMF's quarterly Global Financial Stability Report.

Quest for stability

The IMF report suggested that high risk companies and government funds had difficulty finding investors during the three-month period, while top quality companies with little debt became "safe havens".

However, the report said if investor confidence were to be restored, it needed to be done slowly.

"It is important to guard against an excessive swing in the pendulum away from risk-taking.

"Steps to rebuild confidence are needed to restore calmer financial markets and maintain financial stability."

Latin American risk

The economic outlook remained littered with risks, said the IMF.

These included the possibility of further declines in financial markets which it said "cannot be ruled out if risk perception were to increase or if corporate revenues fail to grow".

The report said the outlook for emerging markets depended on developments in Brazil, where market watchers are keen to see what new measures will be introduced by the new government in January.

"Ongoing confidence measures by the new government should help support the Brazilian debt and currency markets," said the IMF.