IMF calls for continued vigilance as risks to financial stability increase

International Monetary
Fund chief Kristalina Georgieva has said that risks to
financial stability have increased and called for continued
vigilance although actions by advanced economies have calmed
market stress.

The IMF managing director reiterated on Sunday her view that 2023
would be another challenging year, with global growth slowing to
below 3 percent due to scarring from the pandemic, the war in Ukraine
and monetary tightening.

Even with a better outlook for 2024, global growth will
remain well below its historic average of 3.8 percent and the overall
outlook remained weak, she said at the China Development Forum.

The IMF, which has predicted global growth of 2.9 percent this
year, is slated to release new forecasts next month.

Georgieva said policymakers in advanced economies had
responded decisively to financial stability risks in the wake of
bank collapses but even so vigilance was needed.

“So, we continue to monitor developments closely and are
assessing potential implications for the global economic outlook
and global financial stability,” she said, adding that the IMF
was paying close attention to the most vulnerable countries,
particularly low-income countries with high levels of debt.

She also warned that geo-economic fragmentation could split
the world into rival economic blocs, resulting in “a dangerous
division that would leave everyone poorer and less secure.”

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China’s economic rebound

Georgieva said China’s strong economic rebound, with
projected GDP growth of 5.2 percent in 2023, offered some hope for the
world economy, with China expected to account for around one-third of global growth in 2023.

The IMF estimates that every 1 percentage point increase in
GDP growth in China results in a 0.3 percentage point rise in
growth in other Asian economies, she said.

She urged policymakers in China to work to raise
productivity and rebalance the economy away from investment and
towards more durable consumption-driven growth, including
through market-oriented reforms to level the playing field
between the private sector and state-owned enterprises.

Such reforms could lift real GDP by as much as 2.5 percent by 2027,
and by around 18 percent by 2037, Georgieva said.

She said rebalancing China’s economy would also help Beijing
reach its climate goals, since moving to consumption-led growth
would cool energy demand, reducing emissions and easing energy
security pressures.

Doing so, she said, could reduce carbon dioxide emissions by 15 percent over the next 30 years, resulting in a fall in global emissions of 4.5 percent over the same period.

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