BEIJING: The International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, warned on Sunday that risks to global financial stability had increased and called for “vigilance” in response to the recent turmoil in the banking sector.
Speaking at the China Development Forum, Georgieva predicted that 2023 would be another challenging year. Global growth is expected to slow to below 3.0 percent due to factors such as the war in Ukraine, monetary tightening, and the ongoing effects of the COVID-19 pandemic.
Georgieva highlighted that uncertainties were “exceptionally high,” and the outlook for the global economy would likely remain weak over the medium term. She also noted that the rapid transition from a prolonged period of low-interest rates to much higher rates, which is necessary to combat inflation, inevitably causes stresses and vulnerabilities, as evidenced by recent incidents in the banking sector in some advanced economies.
The IMF chief’s comments come after the financial sector was shaken by the collapse of Silicon Valley Bank in the US and the enforced takeover of Swiss Bank Credit Suisse by the multinational investment bank and financial services company UBS, triggering fears of contagion.
Bank shares tumbled on Friday as concerns about the financial sector’s health resurfaced, with German Chancellor Olaf Scholz forced to give reassurances regarding Deutsche Bank after the lender became a focus of investor concerns.
IMF chief says uncertainty remains high
Georgieva acknowledged that policymakers had acted decisively in response to financial stability risks but added that uncertainty remains high, underscoring the need for continued vigilance.
Despite these concerns, Georgieva highlighted China’s rebound as a bright spot for the world economy. The IMF forecasts China’s economy to grow by 5.2 percent this year, driven by a rebound in private consumption as China reopens after its pandemic isolation.
“The robust economic rebound means China is set to account for around one-third of global growth in 2023 – giving a welcome lift to the world economy,” Georgieva said.
“A 1.0 percentage point increase in China’s GDP growth leads to a 0.3 percentage point increase in growth in other Asian economies.”
The IMF Chief urged China’s policymakers to seek to increase productivity and rebalance the economy away from investment and towards more durable consumption-driven growth.
She said market-oriented reforms to level the playing field between the private sector and state-owned enterprises, together with investments in education, would significantly lift the economy’s productive capacity.
