IMF warns of the possibility of a “crash landing” of the global economy if persistently problematic inflation keeps interest rates high for a long time, raising financial risks.

While the IMF hasn’t changed its economic outlook since January in a report released Tuesday, the fund stressed that signs of resilience, combined with lower global energy and food prices, are masking “a bleaker reality.”

Pierre-Olivier Gourinsha, chief economist at the IMF, said: “Under the surface (…) turbulence is brewing and the situation remains quite fragile (…) Inflation is much more resilient than expected even a few months ago.”

“More worryingly, the sharp (monetary) tightening over the past 12 months is starting to have serious side effects on the financial sector.”

In its detailed forecasts released today (which are published twice a year), the IMF notes that the turmoil in the UK government bond market last fall and the banking turmoil in the US last month showed “significant vulnerabilities for both banks and other financial institutions.”

“The likelihood of a hard landing has risen sharply,” the IMF warned.

Mr Gurnitsas told the Financial Times that while the banking system was much more resilient than during the 2008 crisis, policymakers need to “think about what could go wrong.”

“We all remember the long period between the collapse of one institution, whether it was Bear Stearns or Countrywide,” he said, referring to institutions that failed more than a decade ago.