IMF warns that deep financial turmoil will hit global growth

IMF warns that deep financial turmoil will hit global growth

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While a major banking crisis was not in the IMF’s baseline, Gourinchas said a significant deterioration in financial conditions could recur as nervous investors seek to test the “next weakest link” in the financial system as they look at credit. Did it with Suisse.

The report includes two analyzes showing financial turmoil has a moderate and severe impact on global growth.

In a “plausible” scenario, the stress on vulnerable banks – such as some failed Silicon Valley Bank and Signature Bank – burdened with unrealized losses due to tightening monetary policy and reliance on unsecured deposits – creates a situation where “all banks are forced to lose their money”. Fund conditions for the U.S. tighten, leading to, the IMF said, greater concern for bank solvency and potential risks to the financial system.

This “moderate tightening” of financial conditions could shave 0.3 percentage points off global growth for 2023, reducing it to 2.5 percent.

The Fund also includes a severe downside scenario with much wider implications from bank balance sheet risks, which led to a sharp cut in lending in the US and other advanced economies, a large reduction in household spending and a “risk-off” flight of investment funds. Safe-haven dollar-denominated assets.

Emerging market economies will be hit hard by lower export demand, currency depreciation and rising inflation.

This scenario, which Gorinches puts at a 15 percent probability, could reduce 2023 growth by 1.8 percentage points, reducing it to 1.0 percent—a level that implies almost zero growth in per capita GDP. Is. The negative impact could be about one-quarter of the recessionary effect of the 2008–2009 financial crisis.

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