In an address delivered on Sunday in China, the president of the International Monetary Fund urged increased attention to the world financial system and noted the emergence of “green shoots” in the second-largest economy in the world.
IMF Managing Director Kristalina Georgieva stated during comments at the China Development Forum in Beijing that “risks to financial stability have increased.”
Georgieva praised the speed with which policymakers had responded to the financial crisis, pointing to recent cooperation between significant central banks to increase the movement of US money internationally.
She claimed that these measures had somewhat reduced the tension on the market. However, there is a lot of ambiguity, which emphasizes the need for caution.
Following the abrupt failures of Credit Suisse, Silicon Valley Bank, and US regional lender Signature Bank, investors around the world have been extremely concerned about the state of the banking industry.
Markets were affected last week by worries about Deutsche Bank and rumors surrounding one of its bond payments, which prompted EU officials to comfort the public about the stability of Europe’s financial system.
Georgieva stated on Sunday that the IMF was still monitoring the situation and evaluating any possible consequences for the prognosis for the world economy.
She also reaffirmed an IMF prediction that the global economy will expand at a rate of just under 3% this year as a result of ongoing epidemic effects, the conflict in Ukraine, and stricter monetary policies.
According to Georgieva, that is lower than the 3.8% historical norm and represents a decrease from 3.2% in 2022.
She did, however, also note the appearance of “green shoots” in China, whose newly restored economy the IMF anticipates will grow by 5.2% this year. That approximately matches the formal 5% goal set by Beijing.
This level of development would be historically low. However, it would still represent a sharp increase over the 3% recorded by the second-largest economy in the world last year and support the global economy.
According to Georgieva, China’s recovery this year will enable it to add approximately one third of worldwide development. She added that a 1% rise in Chinese GDP growth would also contribute to an average 0.3% increase in growth for other Asian countries.
However, the IMF head encouraged Chinese officials to take action to “rebalance” their country’s economy in favor of development that is fueled more by spending.
According to Georgieva, moving in that direction would be “more durable, less debt-dependent, and will also help address climate challenges.”
In order to achieve this, the social security system will have a crucial part to play in providing increased health and jobless insurance payments to safeguard families from disruptions.
Georgieva also advocated for expenditures in education and changes to “level the playing field between the private sector and state-owned enterprises.”
She stated that “the combined impact of these policies could be significant.”