Banks creating downside risks for global growth: IMF chief economist

Rate of interest rises have elevated banks’ vulnerabilities — and their response presents a major threat to international progress, the Worldwide Financial Fund’s chief economist warned Tuesday.

“We’re involved about what now we have seen within the banking sector, notably within the U.S. however perhaps additionally in different international locations, would possibly do to progress in 2023,” Pierre-Olivier Gourinchas instructed CNBC’s Joumanna Bercetche in Washington, D.C.

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Central financial institution hikes have elevated funding prices for banks, whereas lenders have additionally seen some losses in property like long-term bonds.

“Banks are in a extra precarious state of affairs. They’ve wholesome cushions, however it’s definitely going to cause them to be a little bit bit extra prudent and perhaps reduce down lending considerably,” Gourinchas mentioned.

In a single state of affairs, the IMF sees funding situations for banks tightening additional and squeezing lending, bringing its forecast of two.8% international progress in 2023 all the way down to 2.5%.

Gourinchas mentioned its fashions had additionally forecast a extra adversarial state of affairs the place monetary stability shouldn’t be contained.

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“That may result in large capital flows from the remainder of the world making an attempt to return to security, going to U.S. Treasurys, greenback appreciation, growing threat premia, lack of confidence,” he mentioned. On this state of affairs, the IMF sees the world economic system rising at about 1% for this yr. However the chance of that is comparatively low, Gourinchas famous, at about 15%.

The IMF on Tuesday launched its newest international progress report, which contained its weakest medium-term progress expectations for greater than 30 years.

Monetary stability has been within the highlight in current months, amid the collapse of a number of U.S. banks, the swift sale of Credit score Suisse in Europe, and turmoil within the U.Okay. bond market that just about toppled pension funds final fall.

Gourinchas instructed CNBC that the talk round central financial institution fee hikes had shifted from progress versus inflation to monetary stability versus inflation.

He mentioned central banks and monetary authorities have proven they’ve the instruments to deal with pockets of instability, for instance U.S. regulators guaranteeing deposits for Silicon Valley Financial institution clients and Financial institution of England gilt purchases. “Financial coverage ought to keep targeted on bringing inflation down, that is our suggestion at this level,” Gourinchas concluded.

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