IMF issues warning on global economic stability

Lazy eyes listen


The global economy is in for a difficult year, as the fallout from recent banking crises and the formation of rival economic blocs sparked by the Ukraine conflict threaten global economic stability. According to Kristalina Georgieva, the head of the International Monetary Fund (IMF), who spoke at the China Development Forum in Beijing on Saturday.

According to Georgieva, the year 2023 will be “challenging,” with global growth likely to slow to less than 3% “as scarring from the pandemic, the war in Ukraine, and monetary tightening weigh on economic activity.”

“Uncertainties are exceptionally high, including risks of geoeconomic fragmentation, which could mean a world divided into competing economic blocs – a ‘dangerous division’ that would leave everyone poorer and less secure.” Together, these factors indicate that the global economy’s medium-term outlook is likely to remain weak,” she warned.

Georgieva also stated that recent banking sector problems, ranging from the failure of several lenders in the United States to the near-insolvency of Switzerland’s second-largest bank, Credit Suisse, revealed vulnerabilities in the global financial system that will need to be addressed as the year progresses.

“Financial stability risks have increased.” The rapid transition from a prolonged period of low interest rates to much higher rates – necessary to combat inflation – inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies.”

Georgieva praised policymakers’ recent efforts to support the global banking system by increasing the availability of US dollar liquidity, saying they “have acted decisively in response to financial stability risks.” However, she noted that the measures have only “reduced market stress to some extent, but uncertainty remains high, emphasising the need for vigilance.”

However, Georgieva noted that the global economy’s outlook is not “all bad.”

“There are some ‘green shoots,’ including in China.” The economy is rebounding strongly in this country, with the IMF forecasting 5.2% growth this year… “The anticipated rebound in private consumption as the economy reopens and activity normalises” is driving this growth, she says. The IMF chief added that China is expected to account for roughly one-third of global growth in 2023, providing a “welcome boost to the world economy.”

“Aside from the direct contribution to global growth, our analysis shows that a 1% increase in GDP growth in China leads to an average 0.3% increase in growth in other Asian economies – a welcome boost.”