The International Monetary Fund (IMF) Wednesday warned that global growth may be significantly harmed with further escalation of trade tension, which is a result of the uneven global economic recovery that has fuelled inward-looking policies and contributed to increased policy uncertainty. A decade since the economic crisis, while there has been an undeniable progress towards a safer global financial system, clouds appear on the horizon, the IMF said in its latest fiscal stability report. "The global economic recovery has been uneven and inequality has risen, fuelling inward-looking policies and contributing to increased policy uncertainty. Trade tensions have emerged, and a further escalation may damage market sentiment and significantly harm global growth," it said. "Support for multilateralism has been waning, a dangerous undercurrent that may undermine confidence in policymakers' ability to respond to future crises," the report said. Nonetheless, despite trade tensions and continued monetary policy normalisation in a few advanced economies, global financial markets have remained buoyant and appeared complacent about the risk of a sudden, sharp tightening in financial conditions, the world body said. The IMF report finds that short-term risks to the financial system have increased somewhat over the past six months. "Trade tensions have escalated, policy uncertainties have increased in a number of countries, and some emerging market economies are facing financial-market pressures," Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department of the IMF, said. Looking further ahead, risks remain elevated, he said. To be sure, the financial system is stronger today than before the global financial crisis, thanks to a decade of reform and recovery. "However, vulnerabilities continue to build, and the new financial system remains untested. Additional steps are needed to improve its resilience," Adrian said. If pressures on emerging market economies were to broaden and intensify, financial stability risks would increase significantly, he said. "Our analysis suggests that \u2014 in the medium term \u2014 there is a 5 per cent probability that emerging market economies will experience portfolio debt outflows of USD 100 billion or more. That is broadly similar in magnitude to outflows experienced during the crisis," he said. There are other ways through which stability risks could rise sharply, he said. These include a broader escalation of trade tensions, a no-deal Brexit, renewed concerns about fiscal policy in some highly indebted euro area countries, and a faster-than-expected normalisation of monetary policy in advanced economies, the IMF official warned. According to the report, total nonfinancial sector debt in jurisdictions with systemically important financial sectors has grown from USD 113 trillion (more than 200 per cent of their combined GDP) in 2008 to USD 167 trillion (close to 250 per cent of their combined GDP). Banks have increased their capital and liquidity buffers since the crisis, but they remain exposed to highly indebted companies, households, and sovereigns; to their holdings of opaque and illiquid assets; or to their use of foreign currency funding, it said. To improve the resilience of the global financial system, the financial regulatory reform agenda should be completed, and a rollback of reforms should be avoided, the IMF asserted. And to adequately address potential systemic risks, financial regulation and supervision should be used more proactively, it added. "Broadbased macroprudential tools, including countercyclical capital buffers, should be used more actively in countries where financial conditions remain accommodative and where vulnerabilities are high. Furthermore, financial stability requires new macroprudential tools for addressing vulnerabilities outside the banking sector," the report said. Finally, regulators and supervisors must remain attentive to new risks, including possible threats to financial stability stemming from cybersecurity, financial technology, and other institutions or activities outside the perimeter of prudential regulation, it said.