IMF’s Georgieva warns of heightened risks to financial stability
IMF Managing Director Kristalina Georgieva warned of heightened risks to financial stability and the need for vigilance following recent banking sector turmoil in advanced economies.
Speaking at a conference in Beijing, the IMF chief said uncertainties in the global economy remained “unusually high”, with global economic growth expected to slow below 3% this year due to the war in Ukraine, “marked” by the Covid-19 pandemic. and monetary tightening.
“Financial stability risks have increased at a time of higher debt levels,” Georgieva told the annual China Development Forum, a gathering of global business leaders and senior Chinese policymakers. .
“The rapid transition from a prolonged period of low interest rates to much higher rates needed to fight inflation inevitably generates stress and vulnerabilities, as we have seen in recent developments in the banking sector. ”
The global financial sector was shaken by the collapse this month of a mid-sized US lender, Silicon Valley Bank, which led to the collapse of another US institution and the takeover of Credit Suisse by UBS.
Bank stocks fell again on Friday, this time led by Deutsche Bank, forcing German Chancellor Olaf Scholz to insist there was “no reason to worry” about the institution.
“We’ve also seen policymakers act decisively in response to financial stability risks and we’ve seen central banks in advanced economies improve the provision of US dollar liquidity,” Georgieva said. “These actions have eased the stress in the market to some extent, but uncertainty is high and this underscores the need for vigilance.”
The IMF in January estimated global growth would slow from around 3.4% last year to 2.9% in 2023, then increase to 3.1% in 2024, the forum said.
She also echoed warnings from several other speakers at the conference about the dangers of breaking the world up into economic blocs, saying it would be “a dangerous division that will leave everyone poorer and less secure.”
The most positive development in the global economy this year has been the strong economic rebound expected in China after easing its strict Covid controls at the end of 2022, she said. The IMF predicts growth of 5.2% in China in 2023 against 3% a year earlier.
China’s growth would account for about a third of global growth this year, she said. “A 1 percentage point increase in GDP growth in China leads to 0.3% growth in other Asian economies,” she said.
Several global business leaders also attended the Beijing conference despite rising trade and geopolitical tensions between the United States and China.
Among other speakers, Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore, the city-state’s de facto central bank, said recent macroeconomic challenges were just the “early consequences” of the instability caused by a long period of low and negative real interest rates. in advanced economies.
He described this long period of accommodative monetary policy as the “biggest mistake in macroeconomic policy in 70 years” and called for cooperation between the United States and China as well as competition.
“How the United States and China are able to combine competition. . . economic competition, with the need for cooperation, is going to require considerable strategic ambition and strategic skills,” Shanmugaratnam said.
Chinese Finance Minister Liu Kun said the global situation was difficult, with “unprecedented changes taking place”, including more political tension, without giving further details. This year, China would moderately increase fiscal spending to support the economy, he said.