Financial markets’ disconnect from real economy may lead to corrections, IMF says – The National

Financial markets’ disconnect from real economy may lead to corrections, IMF says – The National

Despite a global economic decline, equity market valuations imply a strong recovery. The world is seeing a "striking divergence" between financial markets and the real economy, which may lead to greater volatility and sharp corrections if health and economic news worsen in the wake of the Covid-19 pandemic, according to the International Monetary Fund.. Financial market indicators are pointing to stronger prospects of a recovery in global output than what activity in the pandemic-battered real economy suggests, Gita Gopinath, chief economist of the IMF said on Tuesday.. "Worse health and economic news can lead to sharp corrections.". Portfolio flows to emerging and developing economies have also stabilised, despite the economic upheaval in these economies.. Countries started to gradually open up their economies last month, while adhering to World Health Organisation guidelines.. Earlier this month, the Organisation for Economic Cooperation and Development earlier said global output is forecast to contract 7.6 per cent in 2020 in the absence of a Covid-19 vaccine, while unemployment in some of the world's largest economies could more than double to about 11 per cent.. The World Bank forecasts global output to shrink 5.2 per cent, while the IMF on Monday said it expects to cut