IMF: Successful exit from QE balances on a knife-edge

"They will need to transition away from these supports if they are to create an environment of self-sustaining growth, marked by increased corporate investment and growing employment".

It said the rock bottom interest rate environment meant many advanced economies had failed to reduce their pre-crisis debt loads. It highlighted the eurozone as a region where companies and banks are also laden with high debt levels.

In addition, Japan has not yet implemented structural reforms to complement the central bank's dramatic injection of liquidity into the economy.

Weaknesses in emerging markets have made them "especially vulnerable" to an earlier-than-expected end to QE by the Fed.

The Fed's announcement last May that it was considering reducing bond purchases - or tapering - unleashed a global sell-off as investors braced for a sharp reduction in the amount of liquidity in the financial system. Emerging market assets were the worst-hit.

It did not start tapering until December and has trimmed asset purchases at every policy meeting since. Asset purchases have now fallen to $55bn per month from the monthly $85bn prior to December.

"As the turbulence of last May demonstrated, the timing and management of exit is critical," said the report.

It added: "Undue delay could lead to a further build-up of financial stability risks, and too rapid an exit could jeopardize the economic recovery and exacerbate still-elevated debt burdens in some segments of the economy."

The IMF nonetheless considers the most likely scenario to be one in which the US economic recovery continues to strengthen, allowing the Fed to gradually exit from QE "without undue financial stability risks or global spillovers". This predicts that the Fed would start increasing interest rates in the second quarter of 2015.

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