Janet Yellen upbeat about global economy despite IMF's gloomy outlook

Economic risks remain, but US Treasury Secretary says not to 'overdo negativism'

US Treasury Secretary Janet Yellen speaks during a news conference at the Treasury Department in Washington. Bloomberg

US Treasury Secretary Janet Yellen on Thursday delivered a more optimistic economic outlook than an International Monetary Fund report that had forecast a “complicated” road to recovery.

Ms Yellen, who has sought to reassure the world of the strength of the US economy, made only passing remarks on the recent banking crisis before pivoting to a positive outlook on the global economy.

“Here at home, the US banking system remains sound with strong capital and liquidity positions,” she told reporters during a briefing at the IMF and World Bank annual meeting in Washington.

“The global financial system also remains resilient thanks to significant reforms after the financial crisis.”

Ms Yellen recalled remarks she had made in February, when she stated the global economy was in a stronger place than expected.

“That basic picture has remained largely unchanged,” she said.

Her remarks indicated a more positive outlook on the global economy than the IMF, which in its World Economic Outlook estimated that economic growth would fall from 3.4 per cent in 2022 to 2.8 per cent this year. The revised figures are 0.1 per cent lower than January estimates.

“I do think the outlook is reasonable. It's certainly stronger [and] brighter than last time,” she said. “So I wouldn't overdo negativism about the global economy.”

And while she played down concerns about tighter lending conditions and the threat of a hard landing in the US, there are still global challenges that could affect economic outlook.

“Still, we remain vigilant to the downside risks,” she said, pointing to the war in Ukraine as well as continued recovery efforts following the Covid-19 pandemic.

“And in some countries, including the United States, there have been recent pressures on our banking systems.”

Ms Yellen said ending the war in Ukraine would be the best way to improve the global outlook, though the reality of that happening soon appears unlikely.

Debt burdens remain for many low-income countries

Significant debt burdens remain a significant economic headwind for too many countries,” with more than half of low-income companies at or near debt distress”.

Ms Yellen also called for reforms to the international debt restructuring process.

“Debt crises do not respect boundaries. They can have cascading effects on the global economy,” she said.

The Treasury secretary said she was encouraged by China offering a two-year moratorium on Sri Lanka's debt. Beijing has also worked to help secure a $2.9 billion bailout for the bankrupt country.

“It's vitally important that all creditors, including China, now deliver on your commitments will also continue to urge action in other critical cases,” she said.