Assumptions and Conventions vi

Further Information vii

Preface viii

Foreword ix

Executive Summary xi

IMF Executive Board Discussion of the Outlook, April 2026 xiv

Chapter 1. Global Financial Markets Confront the War in the Middle East and Amplification Risks 1

Chapter 1 at a Glance 1

Financial Market Developments 2

Amplification Channels from Market Turmoil to Financial Instability 10

Medium-Term Vulnerabilities 27

Policy Recommendations 31

Box 1.1. Rising Japanese Government Bond Yields Could Affect Global Asset Allocation 34

Box 1.2. Financial Conditions: Scenarios and Consequences 36

Box 1.3. Data Centers Become a Large Part of Global Commercial Real Estate and Require Financing 38

Box 1.4. Hyperscalers’ Balance Sheets and Obsolescence Risk: Stylized Scenario Analysis 40

References 42

Chapter 2. Capital Flows to Emerging Markets: The Role of Global Nonbank Investors 43

Chapter 2 at a Glance 43

Introduction 43

A Conceptual Framework on Nonbank Investors and the Transmission of Global Shocks to Emerging Markets 46

The Transmission of Global Risk Shocks by Nonbank Financial Investors 50

Global Risk Sensitivity across Different Types of Nonbank Financial Investors 52

Risk-Sensitive Nonbank Financial Investors and Macrofinancial Stability 54

Conclusions and Policy Recommendations 57

Box 2.1. Private Credit in Emerging Markets 59

Box 2.2. Rising Cross-Border Stablecoin Flows to Emerging Markets 61

References 64