The world risks sliding into a fresh financial crisis leading to global recession if governments and policymakers mishandle market stability risks, the International Monetary Fund warned on Wednesday.

José Viñals, the fund’s head of financial stability, said its scenario “does not rely on extreme assumptions at all”, merely that risk premiums increase again, corporate defaults rise in emerging economies and there is a worldwide decline in appetite for riskier assets.

The effects would consign the world to growth rates sufficiently weak to be termed a global recession. “If we don’t get it right we could set the clock back in terms of growth,” Mr Viñals added.

In its global financial stability report, the IMF simulated the effects of the current financial fragilities in emerging economies turning sour from another shock to confidence or a policy mistake. “Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes,” the report warned.

In these circumstances, spending growth would slow sharply in emerging and advanced economies leading to a shortfall in output of 2.4 per cent by 2017 compared with the baseline IMF forecasts.

– Copyright The Financial Times Limited 2015