High-risk warning from IMF Managing Director Georgieva

International Monetary Fund (IMF) Director Kristalina Georgieva spoke at the annual China Development Forum, which brings together top global executives and top Chinese policymakers.

Georgieva warned of increased risks to financial stability following the recent turmoil in the banking sector in advanced economies, noting that financial stability risks increase during the period of high debt levels.

INCREASED INTEREST GREATER VULNERABILITY

The IMF chief said uncertainties in the world economy are “extraordinarily high” and global economic growth is expected to slow to below 3 percent this year due to the Ukraine war and monetary tightening.

“The rapid transition from long-term low interest rates to much higher interest rates to combat inflation inevitably creates stress and vulnerabilities, as we have seen in recent developments in the banking sector,” Georgieva said.

THE GLOBAL BANKING SECTOR IS SHAKEN

The global financial sector was shaken by the turmoil in the banking sector. Swiss banking giant Credit Suisse was acquired by UBS, while Silicon Valley Bank, a midsize US bank, also failed.

Bank shares, on the other hand, fell again on Friday, led by Deutsche Bank, with German Chancellor Olaf Scholz saying there was “no cause for concern” about the institution.

FALLING GROWTH FORECASTS

In January, the IMF forecast that global growth would slow to 2.9 percent from 3.4 percent in 2023, and then rise to 3.1 percent in 2024.

Although the institution forecasts better prospects for 2024, it believes that global growth will remain below the average of the last decade.