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Banks creating downside risks for global growth: IMF chief economist

IMF chief economist: Severe downside growth risk from bank lending tightening

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

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

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

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

In a single situation, the IMF sees funding circumstances for banks tightening additional and squeezing lending, bringing its forecast of two.8% international progress in 2023 right down to 2.5%.

Gourinchas stated its fashions had additionally forecast a extra antagonistic situation the place monetary stability shouldn’t be contained.

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“That will result in large capital flows from the remainder of the world attempting to return to security, going to U.S. Treasurys, greenback appreciation, rising threat premia, lack of confidence,” he stated. On this situation, the IMF sees the world financial 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 global growth 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 Suisse in Europe, and turmoil within the U.Ok. bond market that just about toppled pension funds final fall.

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

He stated 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 prospects 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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