The managing director of the International Monetary Fund, Kristalina Georgieva, has warned that the financial stability of the global economy is at risk due to turbulence in the banking sector. Georgieva cites rising interest rates as a major factor putting pressure on debt, causing “stresses” among lenders and leading to risks to financial stability. Other factors include the war in Ukraine and scarring from the COVID-19 pandemic.
Georgieva predicts that the world economy will only expand by 3% this year. Recent bank collapses, such as those of Silicon Valley Bank and Credit Suisse, have further increased risks to financial stability, according to Georgieva.
The European Central Bank is also concerned about the impact of banking turmoil on business and growth. Meanwhile, Brexit is presenting a challenging trade-off between low growth and high inflation, with the head of the UK’s public spending watchdog warning of the negative impact of leaving the EU on the UK economy. The ECB’s vice-president, Luis de Guindos, also warns of the potential problems that “shadow banks” could cause the financial system, as they have taken “a lot of risks during the times of very low-interest rates”.