The world economy faces a risk of slipping into a slow-growth pattern sustained by heavy debt, said International Monetary Fund Head Kristalina Georgieva here Thursday while urging China to put in place policies that will energize its economy or risk a spiraling slide downward. "These are nervous times," Georgieva said at the IMF and World Bank's annual meetings. She said the IMF sees global economic growth as precarious and weak at 3.2% this year, with geopolitical tensions compounding the problems taking a toll on the world's largest economies, primarily in differences between the United States and China. "Trade is no longer a potent driver of growth," Georgieva said, pointing to increased global fragmentation.
Much of that debt—from 60% to 70% of the world's—and which soared during the COVID-19 pandemic—would burden the economy. Global government debt is expected to top $100 trillion and reach almost 93% of global economic activity in 2023, potentially crossing the 100% threshold by 2030, the IMF said. "It could mean lower income and fewer jobs," Georgieva warned of a high-debt, low-growth future.
In any event, Georgieva pointed out a few silver linings—inflation is slowing in the developed economies. High interest rates and unwinding of the supply chain distortions have tempered the inflationary acceleration that was noted during 2021 and 2022. The IMF forecast is for inflation to ease to 2% in the next year—an eventuality that could unlock the "soft landing" for most global economies.
Still, economic jitters persist. People worldwide fret about pricey price tags. "People are not feeling good about their economic prospects," said Georgieva, while the world's leaders were trumpeting that their economies are stabilizing.
According to the International Monetary Fund, the Chinese economy, once the growth leader, will expand only at 4.8 percent in 2023 and 4.5 percent by 2025, according to the latest World Economic Outlook report. Urging China to reduce its reliance on exports and "shift more focus to consumer spending," which she labeled as a "more reliable" growth driver, Georgieva signaled decisive action to support a stumbling Chinese property sector could boost consumer confidence and in turn promote spending.
"If China does not move, then potential growth can slow down to way below 4 percent," Georgieva said, calling for reform to stabilize the economy and spur sustainable growth.