U.S. Treasury Secretary Janet Yellen said, “The U.S. banking system is robust, so there is no risk of a credit crunch. The U.S. economy is better than six months ago.” It is an optimism compared to the International Monetary Fund (IMF) warning that a credit crunch could bring the world economy into a stagnation of 1% growth.
On the 11th (local time), Secretary Yellen said at a press conference that day, in response to the point that the US credit is shrinking, there is a possibility, but at this stage we have not seen evidence that credit is shrinking. It is falling. It’s not without risks, but a recession won’t come.”
After the recent Silicon Valley Bank (SVB) crisis, U.S. banks reduced their credit supply, raising concerns over an economic recession. Yellen emphasized that there is no problem.
However, at the IMF-World Bank spring meeting being held in Washington, the capital of the United States, concerns are spreading that the weak link may burst in the future, given that the SVB crisis is a side effect of the rapid rate hike. In its World Economic Outlook (WEO) and Global Financial Stability Report released on the same day, the IMF warned that rising interest rates would pose a threat to the global financial system, pointing out that banks would cut lending and global economic growth would drop to 1% at worst. . For 50 years, economic growth rates in the 1% range were only during the first and second oil shocks, the global financial crisis, and the pandemic.
Pierre Olivier Gorinchas, chief economist of the IMF, said at a press conference, “Inflation is falling slowly, but economic growth has been historically low, and risks in the financial sector are rising. It has been speedy, but there is great uncertainty about when the weak link will collapse like Credit Suisse.”
The International Monetary Fund (IMF) lowered its global economic growth rate by 0.1 percentage point from 2.9% to 2.8%, recognizing that there are concerns about a credit crunch amidst high interest rates. It also predicted that in the United States, where the SVB crisis began, lending capacity would decrease by 1% due to a decline in bank stock prices, and as a result, 0.44 percentage points could be blown away from this year’s GDP growth rate. However, the IMF raised the US economic growth rate this year by 0.2 percentage points from its previous forecast of 1.4% to 1.6%, reflecting the US’ strong employment and consumption indicators.
As for Asian economies such as Korea and Japan, the IMF’s forecast for economic growth has been revised down one after another amid slow economic recovery in China and a blow from the trade slowdown. Korea, Japan, Taiwan, and Singapore’s economic growth rate forecast for this year is 1.8%, down significantly from last October’s forecast (2.3%).
In particular, he pointed out that the economic recovery following China’s reopening is expected to have a positive ripple effect in countries with high trade volume with China, but the rebound may be slow.
The IMF analyzed, “The continued weakness in China’s real estate sector could hold back economic growth more than expected and potentially pose a risk factor to financial stability.” Regarding the adjustment, he said, “It seems that the time lag in the delay in the impact of China’s economic recovery on Korea’s domestic demand was reflected.”
The slowdown in China’s economy has also slowed the global medium-term economic engine. The global economy’s medium-term (five-year) growth forecast has steadily declined from 4.6% in 2011 to 3% this year. The slowing growth of the previously fast-growing economy (as the level of development has increased) and the recent economic slowdown are also reflected,” he said.
Wei Yao, chief economist in charge of Asia at Societe Generale, said in an interview with Bloomberg TV that day, “As a whole, East Asia’s export data to Korea, Taiwan and China are not good.
In an interview with World Bank President David Malpass on the 10th, IMF President Kristalina Georgieva reiterated, “The growth rate has slowed this year, but the most worrying thing is that the global medium-term growth rate is 3%, the lowest since 1990.”
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.