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IMF chief warns of rising risks to financial stability


Kristalina Georgieva points out that "uncertainties are exceptionally high" and warns in Beijing of geopolitical risks

The risks that the world economy will derail again are increasing.

After the crisis caused by the pandemic and the impact of the war in Ukraine, especially on inflation, the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, warned this Sunday at a conference in Beijing of the increased risks for financial stability and derivatives of geopolitical fragmentation.

His statements come two weeks after the bankruptcy of Silicon Valley Bank evoked the specter of a financial crisis by spreading to other US and European entities.

“It is clear that the risks to financial stability have increased,” Georgieva said at the China Development Forum in Beijing, according to the text of the speech distributed by the IMF services in Washington.

“At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates, necessary to fight inflation, inevitably generates tensions and vulnerabilities, as demonstrated by recent developments in the banking sector in some advanced economies”, he added.

The president of the United States Federal Reserve, Jerome Powell;

that of the European Central Bank, Christine Lagarde, and other central bankers have undertaken the most aggressive interest rate hikes in decades to fight rising prices.

In the United States, the rise in interest rates has generated latent losses of hundreds of billions of dollars in the Treasury bond portfolios of financial institutions.

Those losses were one of the triggers for the run on deposits that sent Silicon Valley Bank down.

Georgieva added that "policymakers have acted decisively in response to risks to financial stability, and central banks in advanced economies have increased the provision of US dollar liquidity."

According to the managing director of the IMF, "these measures have somewhat eased market tensions, but uncertainty is high, which underscores the need to maintain vigilance."

The IMF, he explained, is closely monitoring the evolution of the situation and its possible repercussions on the economic prospects and financial stability of the world.

The Fund is paying particular attention to the most vulnerable countries, particularly low-income countries with high levels of debt.

The body will offer a detailed assessment in its next report on the

World Economic Outlook

, which will be published in the coming weeks, during the spring meetings of the Fund, which will be held in Washington.

Last January, and for the first time in more than a year, the Fund dared to raise its growth forecast for the world economy for 2023, even if it was only two tenths, up to 2.9%.

When Georgieva spoke this Sunday, she predicted that "2023 will be another difficult year, with a slowdown in world growth below 3%, since the aftermath of the pandemic, the war in Ukraine and the monetary restriction weigh on economic activity" .

Even with better prospects for 2024, global growth will remain well below its historical average of 3.8%.

The forecast that the Fund published in January was 3.1% for next year.

division into blocks

Not only financial stability worries Georgieva: "Uncertainties are exceptionally high, among other things due to the risks of geoeconomic fragmentation that the division of the world into rival economic blocs could entail," he said.

The managing director of the IMF, who was intervening in Beijing, has not expanded on that division, largely a geopolitical rivalry between the United States and China as superpowers that is increasing protectionism and economic nationalism.

Georgieva has pointed out that this geoeconomic fragmentation is "a dangerous division that would leave everyone poorer and less secure."

Not everything has been pessimism.

“Fortunately, the news about the world economy is not all bad.

We can see some 'green shoots', also in China”, he said, using an expression that made a fortune in the United States in the aftermath of the financial crisis, but which turned against those who pronounced it in some European countries, who suffered a second round with the euro crisis.

In China, Georgieva has said, the economy is experiencing a strong rebound, and the IMF's January forecast puts GDP growth at 5.2% this year, a sizeable increase of more than two percentage points over the rate 2022. The engine of this growth is the expected rebound in private consumption, as the economy has reopened and activity has returned to normal.

“This is important for China and for the world.

The strong rebound means that China will account for around a third of global growth in 2023, providing a welcome boost to the global economy.

And beyond the direct contribution to global growth, our analysis shows that a 1 percentage point increase in GDP growth in China leads to a 0.3 percentage point increase in growth in other Asian economies, on average, a welcome impulse”, he added.

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Source: elparis

All business articles on 2023-03-26

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