March 27: Chief of the International Monetary Fund (IMF) on Sunday warned that the global economy faces risks to its financial stability because of the turmoil in the banking sector.
Kristalina Georgieva, the managing director of the Washington-based lender of last resort, said rising interest rates had put pressure on debts, leading to “stresses” in leading economies, the Guardian reported.
According to the Guardian, Georgieva said that the world economy would expand by just 3 percent this year as rising borrowing costs, combined with the war in Ukraine and scarring from the Covid-19 pandemic, would suffocate growth.
The IMF chief said it was clear that risks to financial stability had increased after the recent collapse of Silicon Valley Bank and the Swiss-government brokered rescue of Credit Suisse by UBS.
Speaking at a forum in Beijing, the IMF managing director said she expected 2023 "to be another challenging year.
According to AFP, she told the China Development Forum that "uncertainties are exceptionally high," with the outlook for the global economy likely to remain weak over the medium term.
"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 stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies," AFP quoted her as saying.
Her stark comments came as the European Central Bank (ECB) said the recent turmoil in banking would have a real-world impact on business and growth, added the Guardian.
The EU central bank fears problems in the banking sector will result in lower growth and dampen inflation, the ECB vice-president, Luis de Guindos, said in an interview with Business Post.
Meanwhile, AFP reported that bank shares tumbled on Friday as fears about the health of the financial sector resurfaced, with German Chancellor Olaf Scholz forced to give reassurances about Deutsche Bank after the long-troubled lender became a focus of investor concerns.
The IMF chief, however, pointed to China's rebound as a bright spot for the world economy.
“The IMF forecasts China's economy to grow 5.2 percent this year, driven by a rebound in private consumption as the country reopens after its pandemic isolation.”