A rise in interest rates could 'unravel' global economy

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10 Aug, 2017

Rising interest rates could 'unravel' global economy

The former chief economist to the International Monetary Fund (IMF) has warned that a sudden rise in interest rates poses the biggest threat to the global economy, whilst he also criticised economic policies held by the Trump administration.

The man who famously predicted that a big bank would collapse during the financial crisis has said that people have become used to ultra-low interest rates. Ken Rogoff served as the IMF’s chief economist between 2001-2003 and now works as a professor of public policy and economies at Harvard.

Previously the economist had said that China was the biggest threat to the global economy but now believes a sudden and sharp rise in interest rates to be the number one threat.

In order to encourage investors to borrow and spend after the financial crisis, interest rates across the world have been held at historic lows. In fact, the UK’s interest rate has been held at 0.25% for just over a year now - August 2016.

However, speaking to the BBC World at One, Rogoff said: "If something was to happen that pushes interest rates up, we could see a lot of soft spots - places where there is high debt - start to unravel.

Without naming specifics, Rogoff also believes that economic policies of the White House were creating uncertainty. "The risk is that the White House or the US will do something really irrational. That may seem hyperbolic but we are all holding our breath", he said.

Rogoff acknowledged that China still remains a threat due to its dependency on exports and political instability. However, he also believes that the financial crash a decade ago had left much of the world "scarred" by the fallout and contributed to the rise of populism in recent years.

"I think the crash greatly amplified this wave of populism that the world is feeling right now. The US would not have had Donald Trump as president without the crash".

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