With the economy weathering the war better than expected, Ukraine, biggest concern for International Monetary Fund (IMF) Today it is financial stability and possible vulnerabilities of the system due to rising interest rates, which have not yet fully manifested themselves.
IMF research director Pierre-Olivier Gourinsha told EFE: “Perhaps what we are most concerned about right now is financial stability,” he said in an interview.
Not only because of what happened in March with “some regional banks in United States” (Silicon Valley Bank and signature), but also because of what happened last fall “with some non-banking financial institutions” in Great Britain, with pension funds and securities (government bonds or treasury securities Commonwealth), explained.
At the moment, according to him, “risks are contained, and financial stability is preserved.” But, “looking into the future, do we really know where the sources of instability might be? Do we really have the prospect of confidence in the financial sector? I don’t think we’re still there,” he added.
The IMF published on Tuesday as part of its spring meetings, which are taking place this week in Washington, its latest macroeconomic outlook report, which highlights that uncertainty continues to reign in the global panorama and warns that the economy will continue to slow down in 2023 and only will grow by 2.8% this year.
All this within the framework that countries are still absorbing the consequences pandemic or the Russian invasion of Ukraine, inflation still very high and more restrictive financial conditions that hinder recovery.
In the most likely scenario, he predicts growth of 3% next year, historically very low figures, although far from a recession.
But, as is usually the case in every semi-annual report, the IMF draws possible alternative scenarios, one bad, one worse, in which the development of the war in Ukraine is no longer the protagonist of the risks. Now the situation with the banking system is the issue that can most affect growth in the coming months.
All this stems from the “very rapid growth interest rates“, which has been produced since last year to control inflation and which “creates some spillovers in the financial sector.”
“This brings losses to some financial institutions, makes them more vulnerable and increases their funding costs,” Gurinshas said.
The research director also clarified that “there are still risks associated with a Russian invasion of Ukraine”, but it is true “that our fears are receding a bit”.
Among them is “the impact of the war on the European economy” as it was seen that “they are more resilient to the energy crisis” and have adapted to high energy prices in 2022 “better than expected”.
Associated risks of rate hikes
To bring down inflation, Federal Reserve andThe American has held a series of interest rate hikes since March 2022. A total of nine increases range from 4.75% to 5%, the highest in 16 years.
For his part, he European Central Bank It has raised rates six times since July 2022, and today they are 3.5%, the highest since 2008.
As recommended Background, This increase should continue until inflation is under control, so it is expected to lead to tighter financial conditions, which will put pressure on the activity of countries, including Spain, Gurinshas said.
In fact, while the IMF increased its growth outlook for the European country by four tenths of what it had announced last January and put the figure at 1.5% (above the eurozone average), the next year it lowered it by four tenths and will grow by only 2%.
“Banks are likely to cut back on their lending in an attempt to be a bit conservative in terms of the risks they take on, and that will have a big impact on activity going forward. We see something similar not only in Spain, but also in a number of European countries,” Gurinshas added.
Banks, he added, “will be a little cautious” in an environment “that is very uncertain and where there is a lot of nervousness in the financial markets.”
So it’s time to “worry” about the financial risks, as well as the expected medium-term growth of 3% over the next 5 years, a low figure that could hit developing countries hard, especially.
(EFE)
Source: Aristegui Noticias
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
