The International Monetary Fund (IMF) has warned an escalation in trade tensions between the US and China could lead to a global financial crisis.
The IMF's latest Global Financial Stability report said near-term risks had increased over the past six months but added investors were "complacent" to the potential for a market correction.
In particular, the report said global growth would be "significantly" harmed by any further increase in trade tensions.
Last month, Washington imposed a 10% tariff on around $200bn worth of Chinese imports with President Donald Trump threatening to increase this to 25% by the start of next year if no solution was found. Beijing retaliated with an additional $60bn of imports.
"A further escalation of trade tensions, as well as rising geopolitical risks and policy uncertainty in major economies, could lead to a sudden deterioration in risk sentiment, triggering a broad-based correction in global capital markets and a sharp tightening of global financial conditions," the IMF said.
Elsewhere, the IMF said a key risk to financial conditions was if the Federal Reserve tightened monetary policy faster than market expectations.
So far, the Fed has hiked interest rates three times this year with expectations of one more in December and three more in 2019.
"With inflation firming up, central banks may step up the pace of monetary policy normalisation, which could lead to a sudden tightening of global financial conditions."
This, the IMF warned, combined with a stronger dollar and escalating trade tensions would lead to increasing pressures in emerging market economies.
These threats have already led to issues in Turkey and Argentina, which have both seen huge falls in their currencies versus the US dollar.
"Growing concerns about resilience and policy credibility of emerging markets in the face of external headwinds could lead to further capital outflows and possibly rising global risk aversion, which could send shock waves across broader risky asset markets.
"In that scenario, countries with high external debt, substantial financing or rollover needs, limited policy space, and weak reserve buffers would be particularly vulnerable," the report added.
The report did note the growing "anxiety" about the possibility of a no-deal in the Brexit negotiations, claiming this could lead to "contractual and operational" uncertainties.
In its latest World Economic Outlook, released on Tuesday, the IMF predicted global growth to expand by 3.7% in 2018, 0.2 percentage points lower than its forecast in July causing the FTSE 100 to fall to a six-month low, dropping 0.5% to 7,198 points.
"Political and policy uncertainty (for example, in the event of a no-deal Brexit or the re-emergence of concerns about fiscal policy in some highly indebted euro area countries) could adversely affect market sentiment and lead to a spike in risk aversion," it added.
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