The global economy may be on a path to recovery as signs of stabilization emerge from the eurozone and the United States, managing director of the International Monetary Fund, Christine Lagarde, said on Sunday.
As the global economy struggles to recover, Lagarde also praised China's
leadership and influence in contributing to global economic stability.
"The financial market conditions are more comfortable and recent economic
indicators are beginning to look a little more upbeat Europe has taken an
important step forward in solving its crisis with the latest efforts on
Greece,"
Lagarde Said in a Speech in Beijing.
These signs showed that policy actions taken in the wake of the global
financial crisis are paying off, she said.
"On the back of these collective efforts, the world economy has stepped
back from the brink and we have cause to be more optimistic," she added.
However, Lagarde said: "Optimism must not lull us into a false sense of
security. There are still major economic and financial vulnerabilities that we
must confront."
Lagarde cited the still fragile financial systems as the first of major
risks, and said the amount of eurozone public sector and bank rollover funding
needed in 2012 was equivalent to about 23 per cent of GDP.
Meanwhile, rising oil prices, high unemployment rates and the possible
slowdown of emerging economies also posed threats to growth, the IMF chief
warned.
"So, the global economy may be on a path to recovery, but there is not a
great deal of room for maneuver and no room for policy mistakes," she said.
In response to these issues, she urged advanced economies to continue
with macroeconomic support and a balanced fiscal policy, together with
financial sector reforms and structural and institutional reforms to repair
the damage done by the crisis and to improve competitiveness.
Meanwhile, emerging market economies needed to calibrate macroeconomic
policies both to guard against fallout from the advanced economies and to keep
overheating pressures in check, she said.
Lagarde made the remarks at a forum on China's development, after her
meeting with Vice-Premier Li Keqiang, where they discussed reforming the IMF.
Li expressed China's support for IMF during the meeting. "China expects
the IMF to further proceed its reform process and better fulfill its role in
stabilizing the global economy and international financial market," he told
Lagarde.
Ahead of the meeting, IMF spokesman Gerry Rice was quoted by Agence
France-Presse as saying that the discussions "would also touch on a broad
number of issues, including the state of the global economy, the implications
of the eurozone crisis and the status of progress in the Chinese economy".
Lagarde said China had showed leadership and adept policy skills when the
global financial crisis exploded and things might have been worse except for
the impetus it provided to growth and stability.
China unveiled a massive 4 trillion yuan ($635 billion) stimulus package
for its economy at the end of 2008 as the financial crisis reverberated around
the world and global trade shuddered to a standstill.
The package helped China withstand the downturn and kept annual economic
growth ticking along above 9 per cent in each of those two years, while
developed economies struggled to stop their financial sectors from collapsing.
Lagarde further praised what she said was China's leadership and
influence in global institutions, such as the IMF and G20 group of the world's
20 biggest economies.
"China has been instrumental in helping to make the global economic
system less prone to damaging crises," she said, adding that lingering
weaknesses in the global outlook reinforced the importance of China
maintaining a prominent role in global policy discussions and accelerating
reform in its own economy.
The IMF chief said it was crucial that the world's major economies work
together with the same objective.
"We are all interconnected and we are all affected by each other's policy
actions. We need to prepare for success together. If we stand together, the
whole will be more than the sum of its parts," Lagarde said.
