IMF issues WARNING on global economic instability

The year 2023 is likely to present significant difficulties for the global economy. The recent banking crises, along with the formation of competing economic blocs that have arisen due to the Ukraine conflict, pose a substantial threat to global economic stability. Kristalina Georgieva, the head of the International Monetary Fund, shared her views on this matter during her address at the China Development Forum in Beijing.

 

Georgieva has expressed her concern that the fallout from the pandemic, the war in Ukraine, and monetary tightening will cause global growth to slow down to below 3%. Uncertainties are high, and the risks of geo-economic fragmentation have increased, which could result in the world being split into rival economic blocs. She has referred to this as a "dangerous division," and warns that it would leave everyone poorer and less secure. Due to these factors, the global economy's outlook for the medium-term is expected to remain weak.

 

The IMF head has also drawn attention to the recent difficulties in the banking sector, such as the collapse of several US lenders and the near-insolvency of Credit Suisse, Switzerland's second-largest bank. These incidents have exposed vulnerabilities in the global financial system that will require attention as the year progresses.

 

Georgieva praises policymakers' recent efforts to support the global banking system, such as enhancing the provision of US dollar liquidity. However, she acknowledges that the measures have only eased market stress to some extent, and the uncertainties are high, which highlights the need for vigilance.

 

While the outlook for the global economy may not be entirely favourable, Georgieva does acknowledge some positive developments, such as the strong rebound of China's economy. According to the IMF's January forecast, China's GDP growth is expected to reach 5.2% this year. Private consumption is anticipated to rebound, driving this growth as the economy has reopened and normalised activity. Georgieva also notes that China is expected to account for about one-third of global growth in 2023, which would give a welcome lift to the world economy.

 

Additionally, the IMF's analysis indicates that a 1% increase in China's GDP growth leads to a 0.3% increase in growth in other Asian economies, on average, which is a welcome boost.

 

The challenges facing the global economy require careful consideration and thoughtful solutions. Policymakers must work together to address the vulnerabilities in the global financial system and navigate the complexities of geo-economic fragmentation to prevent dangerous division and promote economic stability.