Recent stock sell-off may be good for the world economy, SocGen chairman says

Key Points
  • Societe Generale's chairman has told CNBC that a recent stock sell-off was probably a good thing.
  • Lorenzo Bini Smaghi said markets were "a bit nervous" about trade and the policy mix in the U.S..
  • The former central banker added that Italy's budget wrangle was also stressing investors.
Italy is taking a 'risky gamble' with the EU: SocGen chairman

The chairman of Societe Generale told CNBC Friday that a selloff in stocks at this stage maybe be good for the global economy.

Stocks have tumbled on the back of concerns surrounding global economic growth and rising interest rates. The International Monetary Fund (IMF) warned earlier this week that simmering trade tensions could lead to a "sudden deterioration in risk sentiment."

The Dow Jones Industrial Average shed more than 1,300 points on Wednesday and Thursday but pre-market trading and European markets suggests that some of those losses will be recouped on the final day of the trading week.

Speaking to CNBC's Nancy Hungerford at the Institute of International Finance meeting in Bali, Societe Generale Chairman Lorenzo Bini Smaghi said a sell-off in stocks was acting as something of a safety valve to prevent a bigger crisis developing later.

"I think you go through these cycles and I think it is better to have them earlier than at the end of the cycle," he said before adding, "To some extent if this doesn't create too much financial contagion, to get to fair conditions I think it's maybe healthy for the economy."

We can reach Brexit deal with EU, problem is UK vote: SocGen chairman

The former central banker admitted that markets were "a bit nervous" about trade, the policy mix in the U.S., and the possibility that stock valuations were a bit excessive.