This article first appeared in The Edge Financial Daily on February 8, 2018

KUALA LUMPUR: The world should be vigilant about a potential global economic and financial crisis, especially in light of the “vibrant markets” that it is currently witnessing, according to the World Bank.

This is because financial stress is among the main long-term risks to strong economic growth forecasts, according to World Bank director for development prospects Ayhan Kose.

“A potential crisis should be at the back of our minds,” Kose said at the launch of the Global Economic Prospects report here yesterday.

He also questions whether history may repeat itself while highlighting that since the 1970s, every decade has seen a global economic crisis accompanied by a recession worldwide.

“The problem is, [a crisis] translates into negative effects, causing weaker potential growth over an extended period.

“The sudden repricing of risk could lead to higher volatility,” he said, highlighting factors such as higher-than-expected inflationary pressure, which would result in accelerated tightening of monetary policy by central banks.

Additionally, because the potential output gap is closing in emerging markets as well as in advanced economies, inflationary pressure may also be higher in those markets.

However, economic growth is expected to remain resilient in the near term as global financial systems are now much better equipped to face potential stresses compared with that in, say, five or 10 years ago, Kose told reporters. “Emerging markets will continue delivering strong growth rates.”