Hong Kong () — The head of the International Monetary Fund called for greater vigilance over the global financial system during a speech in China on Sunday in which she also pointed to the “green shoots” emerging in the world’s second-largest economy.
“Risks to financial stability have increased,” said IMF Director Kristalina Georgieva during remarks at the China Development Forum in Beijing.
Georgieva praised the speed with which policy makers acted in response to the banking crisis, citing the recent collaboration of major central banks to boost the flow of US dollars around the world.
“These actions have eased the stress on the market to some degree,” he said. “But uncertainty is high, which underscores the need for vigilance.”
Kristalina Georgieva, head of the IMF, at a development forum in Beijing on March 26, 2023.
Global investors have been on high alert over the health of the banking sector following the sudden falls of Credit Suisse, Silicon Valley Bank and US regional lender Signature Bank.
Last week, the concerns about Deutsche Bank and speculation about one of its bond payments also affected the markets, which led the leaders of the European Union to reassure the public about the resilience of the European banking system.
Georgieva said Sunday that the IMF was continuing to monitor the situation and assess the possible implications for the global economic outlook.
Meanwhile, he reiterated an IMF projection that the global economy will see slow growth to just under 3% this year, due to the continuing fallout from the pandemic, the war in Ukraine and tighter monetary policies.
That compares with the historical average of 3.8%, according to Georgieva, and down from 3.2% in 2022.
But it also pointed to the emergence of “green shoots” in China, where the IMF expects the newly reopened economy to grow 5.2% this year. That’s roughly in line with Beijing’s official target of 5% growth.
Such growth would mark a record low. But it would still be a significant improvement on the 3% posted by the world’s second-largest economy last year, and would help prop up the global economy.
China’s recovery this year will allow it to contribute about a third of global growth, according to Georgieva. Any 1% increase in Chinese GDP growth would also help boost growth in other Asian economies by an average of 0.3%, she added.
But the IMF chief urged Chinese politicians to take steps to shift its economy and “rebalance” it toward more consumption-led growth.
Leaning towards that model would be “more durable, less reliant on debt, and will also help address climate challenges,” Georgieva said.
“To get there, the social protection system will need to play a central role through increased health insurance and unemployment benefits to shield households from crises.”
Georgieva also called for reforms to help “level the playing field between the private sector and state-owned companies, along with investments in education.”
“The combined impact of these policies could be significant,” he said.
