Janet Yellen, chair of the U.S. Federal Reserve, center, talks to Mario Draghi, president of the European Central Bank (ECB), before the IMF governors' group photo at the International Monetary Fund (IMF) and World Bank Group Spring Meetings in Washington, D.C. (File photo).

The next global economic slowdown could come from rising risks outside the banking sector, according to the International Monetary Fund.

Leverage in the nonfinancial sector for G-20 economies as a whole has surpassed its precrisis high, the IMF said Wednesday in its Global Financial Stability Report.

Nonfinancial sector debt refers to borrowing by governments, nonfinancial companies and households. The total level of that debt for G-20 economies rose to $135 trillion, or about 235 percent of aggregate gross domestic product in 2016, surpassing the debt-to-GDP ratio of 210 percent in 2006, before the financial crisis, according to the IMF.

Source: IMF

Low borrowing costs and muted financial market volatility "support a sanguine view of risks to the global economy in the near term," the report said. "But increasing leverage signals potential risks down the road, and a scenario of a rapid decompression in spreads and volatility could significantly worsen the risk outlook for global growth."

Volatility has fallen sharply amid stocks' relentless push toward record highs. The CBOE volatility index, widely considered the best gauge of fear in the market, closed at its lowest on record on Thursday. Meanwhile, easy monetary policy implemented in the wake of the financial crisis has kept global bond yields low, pushing investors into riskier assets with higher returns.

"As the search for yield intensifies, vulnerabilities are shifting to the nonbank sector, and market risks are rising," the IMF report said. "Asset valuations are becoming stretched in some markets."

For example, the amount of global investment-grade fixed-income assets with a yield of more than 4 percent has fallen to less than 5 percent, or $1.8 trillion, down from 80 percent, or $15.8 trillion, the IMF said.

The economic impact from tightening global financial conditions would be "significant," about one-third as severe as the global financial crisis, the report said.

The U.S. central bank would have to reverse its policy of removing accommodation, and emerging markets would likely suffer about $100 billion in portfolio outflows over four quarters, the IMF said.

Source: IMF

In China, where worries about leverage are among the highest, the IMF said banking sector assets have risen steadily to 310 percent of GDP from 240 percent of GDP at the end of 2012.

"Authorities face a delicate balance between tightening financial sector policies and slowing economic growth," the report said, noting "increased vulnerabilities" at banks from growing use of short-term wholesale funding and "shadow credit."

The IMF report did note that near-term risks have fallen globally and that the health of banks in many advanced economies has also improved.

On Tuesday, the IMF raised its global growth projections for this year and next by 0.1 percentage point each, to 3.6 percent and 3.7 percent, respectively. The world economy grew at its slowest pace since the financial crisis in 2016, at 3.2 percent.