IMF chief warns of global risks from prolonged China downturn | Economy
IMF chief warns of global risks from prolonged China downturn |  Economy

IMF chief warns of global risks from prolonged China downturn | Economy

Kristalina Georgieva says Beijing has room to take action to support the world’s second largest economy.

China’s actions to support the economy will be crucial to the global recovery, the head of the International Monetary Fund has said, warning that a prolonged downturn would have significant spillover effects.

IMF Executive Director Kristalina Georgieva said on Thursday that Beijing had room to take measures to support growth amid a deteriorating outlook for the world’s second-largest economy.

In a video speech to the annual Boao Forum for Asia in China’s Hainan province, Georgieva said political support could include “shifting focus on vulnerable households to boost consumption, which could also help support China’s climate goals by directing economic activity to sectors with lower CO2 emissions. ”.

“Stronger political action in the real estate sector can also help ensure a balanced recovery,” Georgieva said.

Major financial institutions, including UBS, Bank of America, Barclays and Standard Charted, have downgraded their growth forecasts for 2022 in recent days, casting doubt on Beijing’s target of around 5.5 percent.

On Tuesday, the IMF lowered its forecast for China to 4.4 percent, down from 4.8 percent. Beijing’s strict “dynamic zero COVID” strategy has forced large parts of China to shut down, disrupt factory production and limit public consumption.

Among China’s top 100 cities by economic size, all but 13 are under pandemic restrictions, with the intensity of controls on the rise, according to a recent analysis by investment research firm Gavekal.

China’s economy grew 4.8 percent year to year in the first quarter according to government data. While beating expectations, the figure covers only a small period of the ongoing shutdown in Shanghai, China’s most populous city and financial capital, where residents have complained about food shortages and demonstrated rare public demonstrations of dissent.

Global supply chains

“China had already moved from a nation of shippers to a nation of shoppers, focusing away from exports to domestic consumption and investment,” Tim Harcourt, chief economist at the Institute for Public Policy and Governance at the University of Technology Sydney, told Al Jazeera.

“They also had to slow down the economy to take environmental considerations into account. So the recent COVID outbreak has done just that. But the world economy still needs to pay attention to China because of its central role in global supply chains. “

Last week, the People’s Bank of China announced a cut in the amount of deposits banks must hold in reserve in an effort to support growth, releasing about 530 billion yuan ($ 82 billion) of liquidity to the economy – below market expectations. Despite expectations of interest rate cuts in recent weeks, the central bank has kept interest rates stable since January, suggesting that politicians remain cautious about building up excessive debt.

Chinese President Xi Jinping has repeatedly defended the “zero COVID” approach, even though the rest of the world is learning to live with the virus.

Xi spoke at the same forum on Thursday that China’s economy remained robust and called for cooperation to “defend the lives and health of the people”.

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