During a speech at the China Development Forum in Beijing on Sunday, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, urged for greater vigilance over the global financial system while acknowledging the emergence of “green shoots” in the world’s second-largest economy, China.
Georgieva highlighted the increasing risks to financial stability and emphasized the need for vigilance, stating, “risks to financial stability have increased.”
She praised policy-makers for their swift actions in response to the banking crisis, citing the recent collaboration by major central banks to boost the flow of US dollars around the world, which she said, “eased market stress to some extent.”
Georgieva also acknowledged the high level of uncertainty and cautioned that despite recent actions, financial risks still exist.
In contrast, she expressed optimism about China’s recovery, highlighting the positive developments as “green shoots.”
Global investors have been monitoring the banking sector closely following the sudden downfalls of Credit Suisse, Silicon Valley Bank, and US regional lender Signature Bank.
Last week, the markets were weighed down by concerns surrounding Deutsche Bank and speculation regarding one of its bond payments. This prompted European Union (EU) leaders to reassure the public of the resilience of Europe’s banking system.
During her speech at the China Development Forum in Beijing on Sunday, Georgieva stated that the IMF is closely monitoring the situation and assessing its potential implications for the global economic outlook.
Georgieva highlighted the need for continued vigilance over the global financial system and the importance of ensuring the stability of banking systems.
Georgieva emphasized that the IMF is actively engaging with policy-makers and monitoring developments in the financial markets to ensure that appropriate measures are taken to maintain financial stability.
She added that the IMF is committed to working with its member countries to strengthen their financial systems and enhance their resilience to potential risks.
Georgieva’s comments come amid ongoing concerns about the stability of the global financial system, as well as the potential impact of various economic and geopolitical factors on the global economy.
The IMF has repeatedly called for greater international cooperation and coordination to address these challenges and ensure sustainable economic growth.
IMF Managing Director Kristalina Georgieva reiterated the IMF’s projection that the world economy will see growth slow to just under 3% this year, compared to the historic average of 3.8%.
Georgieva attributed the slowdown to the continued fallout from the pandemic, the war in Ukraine, and tighter monetary policies. This represents a decline from the 3.2% growth rate recorded in 2022.
Despite this, Georgieva also noted the emergence of “green shoots” in China. The IMF expects the recently reopened Chinese economy to expand by 5.2% this year, roughly in line with Beijing’s official target of 5%.
Although this growth rate is lower than the historic average, it marks a significant improvement on the 3% growth rate recorded by the world’s second-largest economy last year, and will help support the global economy.
Georgieva emphasized the significance of China’s rebound this year, stating that it will contribute roughly one third of global growth.
She added that any 1% increase in Chinese GDP growth would also help lift other Asian economies’ growth by an average of 0.3%.
Georgieva’s comments come at a time of ongoing uncertainty regarding the global economic outlook. While there are signs of recovery in some countries, the impact of the pandemic, geopolitical tensions, and other factors continue to weigh heavily on the global economy.
The IMF has called for continued vigilance and international cooperation to address these challenges and ensure sustainable economic growth.
She urged Chinese policymakers to take steps to shift the country’s economy and “rebalance” it towards more consumption-driven growth, which would be “more durable, less reliant on debt, and will also help address climate challenges.”
Georgieva emphasized the need for the social protection system to play a central role in achieving this goal, through higher health and unemployment insurance benefits to cushion households against shocks.
Georgieva also called for reforms to “level the playing field between the private sector and state-owned enterprises, together with investments in education.” According to Georgieva, the combined impact of these policies could be significant.
Georgieva’s comments reflect ongoing concerns about China’s economic model, which has relied heavily on exports and investment to fuel growth in recent years.
While this approach has brought significant gains, it has also led to rising debt levels and environmental challenges.
By shifting towards more consumption-driven growth, China could build a more sustainable and resilient economy that better serves the needs of its citizens and the global community.