By Andrea Shalal

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen on Tuesday said she remained vigilant to downside risks facing the global economy, given Russia’s ongoing war against Ukraine and banking pressures, but the overall outlook was “reasonably bright.”

Yellen, speaking at a news conference, pushed back against warnings by the International Monetary Fund of bigger risks associated with severe financial tensions.

“I wouldn’t overdo the negativism about the global economy,” Yellen said, when asked about a slightly trimmed IMF global growth forecast for 2023 which warned that a flare-up of financial system turmoil could slash output to near recessionary levels. “I think we should be more positive.”

Yellen said she had not seen evidence suggesting a squeeze in credit after two U.S. bank failures last month, although that was a possibility. She said the U.S. banking system remained sound, with strong capital and liquidity positions, and the global financial system is resilient due to the significant reforms enacted after the 2008 financial crisis.

“The U.S. economy is obviously performing exceptionally well with continued solid job creation, inflation gradually moving down, robust consumer spending,” she said. “So I’m not anticipating a downturn in the economy, although, of course, that remains a risk.”

Yellen told reporters the global economy was in a better place than projected last fall, with energy and food prices having stabilized and supply chain pressures continuing to ease.

A price cap on Russian oil was helping to stabilize global energy markets while reducing Russia’s primary source of revenue, she said, adding that ending the war would be the single biggest help for global economy.

“Still, we remain vigilant to the downside risks,” she said.

Speaking at the start of a week of meetings at the International Monetary Fund and World Bank, Yellen said the U.S. labor market was strong, but inflation remained too high.

The U.S. government last month took emergency actions after the failures of Silicon Valley Bank and Signature Bank, and subsequently announced steps to increase supervision of mid-sized banks that do not require approval by the split Congress.

She said Treasury was committed to working through global bodies like the Financial Stability Board and the Basel Committee on Banking Supervision, while addressing vulnerabilities in nonbank financial institutions.

DEBT OVERHANG

Yellen said high debt burdens posed a “significant economic headwind for too many countries,” with more than half of all low-income countries near or in debt distress, and called for steps to improve the international debt restructuring process.

She said she was encouraged that China – the world’s largest sovereign creditor – had agreed to provide specific and credible financing assurances for Sri Lanka, but said China and all of Sri Lanka’s creditors needed to deliver on commitments. Yellen also called for completion of a debt treatment for Zambia and the rapid establishment of a creditor committee for Ghana.

Yellen told reporters she still hoped to visit China to keep channels of communication open, but gave no details on timing.

UKRAINE WAR

Yellen also said she would rally international partners to continue supporting Ukraine as it continues to defend itself against Russia, and to keep putting pressure on Russia to end the war through sanctions and other measures.

“Over the past year, our campaign has systematically degraded Russia’s military-industrial complex and helped reduce the revenues that Russia can use to fund its war,” she said. “This year, a central piece of our strategy is to take further actions to disrupt Russia’s attempts to evade our sanctions.”

Washington’s three-pronged approach involves improving information sharing and coordination among allies, putting pressure on companies and jurisdictions that are helping Russia evade sanctions, and shutting down specific channels used by Russia to equip and fund its military.

(Reporting by Andrea Shalal; additional reporting by David Lawder; Editing by Chizu Nomiyama)

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