While the “sun is still shining” on the global economy, clouds could be looming over the horizon, warned Tao Zhang, a deputy managing director for the International Monetary Fund.
Speaking with CNBC’s Joumanna Bercetche on Thursday, Zhang said there are currently three big challenges facing the global economy: tensions on the trade front, fiscal and financial risk, and the ongoing struggle to attain inclusive growth.
As trade tensions mount between the U.S. and China, Zhang said there are numerous models attempting to assess both the impacts of a potential trade war as well as the effectiveness of possible mitigation measures.
Zhang acknowledged, however, that the reality of the situation could be “much more complicated” than predicted by models, adding that the fundamentals all point to the resolution of trade disagreements through a cooperative approach.
Otherwise, he said, any escalations in trade tensions would result in a loss for the global economy “one way or the other.”
Zhang has worked as the IMF’s executive director for China, and as a deputy governor at the People’s Bank of China.
‘That, by itself, is alarming to all of us’
Speaking about the risk of global debt — the total debt level for the world came in at a record $164 trillion in 2016, according to the IMF — Zhang noted he’s seeing levels “higher than the levels seen” during the 2008 financial crisis.
“That, by itself, is alarming to all of us,” he said.
Countries have to be aware of their fiscal conditions, particularly in the public sector, to ascertain sustainability or determine if fiscal expansion remains a viable option to support economic growth, Zhang said.
As some economies approach full employment, further government expenditure could wind up imposing risks to the sustainability of their fiscal health, he warned.
Finally, on the topic of innovation, Zhang said there is “great” potential for financial technology to bring efficiency gains and wider coverage of financial services for the masses.
The caveat with technology, however, remains the risk of cybercrime proliferating, Zhang said, and that will require “very close attention,” with the IMF working together with countries and concerned industries to find solutions to the problem.