In her speech at the China Development Forum in Beijing, Georgieva emphasised the need for caution in what she expects to be another difficult year, with global growth slowing to below 3.0 percent due to the conflict in Ukraine, tightening financial conditions, and pandemic-related scarring.
She emphasised that there are “exceptionally high” uncertainties and that the medium-term outlook for the global economy is likely to be bleak.
Georgieva attributed the quick shift from a protracted period of low interest rates to much higher rates required to combat inflation as the cause of the increased risks to financial stability. As recent changes in the banking sector in some advanced economies have shown, this transition creates stresses and vulnerabilities.
Fears of a contagion have been raised as a result of the recent failure of Silicon Valley Bank and the forced takeover of Swiss bank Credit Suisse by rival UBS.
Georgieva praised decision-makers for their swift response to threats to financial stability, which to some extent reduced market stress. Despite this, she emphasised the necessity of being vigilant in light of the high levels of uncertainty.
Despite the difficulties, Georgieva cited China’s recovery as a positive development for the world economy. As the nation reopens after its pandemic isolation, the IMF forecasts that China’s economy will expand by 5.2 percent this year. This growth will be fueled by a rebound in private consumption.
She pointed out that due to the strong rebound, China is expected to contribute about one-third of global growth in 2023, providing a much-needed boost to the global economy.
Georgieva pleaded with China’s policymakers to increase productivity and rebalance the country’s economy away from investment and towards more resilient consumption-driven growth.
Investments in education along with market-oriented reforms to level the playing field between state-owned businesses and the private sector would greatly increase the economy’s productivity.
Georgieva emphasised that an increase in GDP growth in China results in an average increase in growth in other Asian economies of 0.3 percentage points, which is a welcome improvement.
Georgieva’s remarks emphasise the necessity for decision-makers to exercise caution in the face of rising risks to financial stability. She also draws attention to the potential for productivity-boosting reforms and the opportunities for growth presented by China’s recovery.
