The British newspaper “Financial Times” stated that it can be said that the international economic system has shown remarkable resilience so far, and the most pessimistic predictions of a large-scale financial crisis and a series of debt defaults by low-income countries have been avoided. However, the newspaper stressed in its article entitled “The Fragile Global Economy” that the global economy suffers from severe scars.
And the newspaper reported that these scars have accumulated over the past three years, as the global economy was subjected to an unprecedented series of shocks, after the outbreak of the Corona epidemic and the Ukrainian war caused more turmoil, which led to the cost of living crisis, and central banks raised interest rates to contain hyperinflation.
And she pointed out that despite the return of some calm to the banking system after the collapse of banks in the United States and the acquisition of “Credit Suisse” by “UBS” in March, the financial markets are still on shaky ground, stressing that there are concerns about The impact of higher interest rates on commercial real estate and the non-banking sector.
The newspaper said that central banks have the task of limiting further instability and ensuring that high inflation is not entrenched, noting that raising the interest rate by banks to control inflation led to an increase in high borrowing costs, which harmed developing countries that had accumulated huge debts. As a result of dealing with the pandemic and rising food and energy prices, which were exacerbated by the strength of the dollar.
She stated that about 60% of low-income countries are at high risk of debt distress or are already in distress. The poorest countries also face their largest external debt service bills in 25 years.
The newspaper pointed out that the high debt burdens complicate the task of developing countries, which need large sums of money annually to reduce emissions and deal with the damage caused by climate change, explaining that strengthening efforts to address global warming is crucial to prevent people in poor countries from falling into poverty. , and drive growth and job creation, warning of geopolitical risks undermining global prospects
The newspaper also referred to what the International Monetary Fund said that the long-term cost of fragmentation of trade, as a result of tensions between the United States and China, may reach about 7% of global GDP, adding that the barriers to trade, investment and technology transfer would limit growth, particularly in poor countries.
And she believed that policy makers should work to mitigate these aforementioned risks, and that regulators should remain vigilant against the spillover effects of high interest rates, and the recent banking crisis should also be a wake-up call to improve banking and non-banking regulations.
The newspaper concluded its article by saying that the complex challenges facing countries require an ambitious and cooperative global response. This week’s meetings are a crucial moment to start that, in reference to the spring meetings of the International Monetary Fund and the World Bank that began yesterday and extend for a full week in Washington, in light of a charged atmosphere between the need for action. Reforms, successive crises, and economic slowdown.
The International Monetary Fund has slightly lowered its global growth forecast for 2023 with the slowdown in interest rate hikes, but warned that severe financial system disruptions would lead to production cuts to levels close to stagnation.
In its latest World Economic Outlook report, the International Monetary Fund stated that the risks of contagion in the banking system were contained through strong policy measures after the collapse of two US banks and the forced merger of Credit Suisse. The unrest added to the uncertainty created by rising inflation and the spillover effects of Russia’s war in Ukraine.
“With the recent increase in financial market volatility, uncertainty surrounding the global economic outlook has increased,” the International Monetary Fund said, at the outset of the joint spring meetings with the World Bank in Washington.
The fund added that “uncertainty increases and the balance of risks shifts strongly to a downward trend when the financial sector is unstable.”
The International Monetary Fund now expects global real GDP growth of 2.8% in 2023 and 3% in 2024, down sharply from 3.4% growth in 2022 as a result of monetary tightening.
