IMF boss raises red flag over risks to financial stability

Beijing — Risks to financial stability have increased, IMF chief Kristalina Georgieva said on Sunday as she called for continued vigilance though actions by advanced economies that have calmed market stress.

The MD reiterated her view that 2023 will be another challenging year, with global growth slowing to below 3% 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% and the overall outlook remains weak, she said at the China Development Forum.

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

Georgieva said policymakers in advanced economies have responded decisively to financial stability risks after bank collapses but vigilance is still needed.

“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 is paying close attention to the most vulnerable countries, particularly low-income countries with much debt.

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

Georgieva said China’s strong economic rebound, with projected GDP growth of 5.2% in 2023, offers some hope for the world economy, with China expected to account for about 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-orientated 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% by 2027, and by about 18% by 2037, Georgieva said.

She said rebalancing China’s economy will 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% over the next 30 years, resulting in a fall in global emissions of 4.5% over the same period.

Reuters