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IMF chief says productivity, Chinese consumer spending key to boosting global growth

Published 04/18/2024, 11:30 AM
Updated 04/18/2024, 01:26 PM
© Reuters. International Monetary Fund Managing Director Kristalina Georgieva holds a press briefing on the Global Policy Agenda to open the IMF and World Bank's 2024 annual Spring Meetings in Washington, U.S., April 18, 2024.  REUTERS/Kevin Lamarque

By David Lawder and Andrea Shalal

WASHINGTON (Reuters) - International Monetary Fund Managing Director Kristalina Georgieva bemoaned the slow pace of global growth on Thursday, saying that Europe needed to do more to boost productivity and China should work to unleash greater consumer spending.

Georgieva told a news conference during the IMF and World Bank spring meetings in Washington that a number of factors are converging to hold back growth in Europe and China, from aging populations to sub-optimal allocations of capital, while the U.S. has far outperformed expectations.

"This is what preoccupies us these days. How can we better stem the slowdown of productivity and growth, and what we can do to reverse it?" Georgieva said.

The IMF on Tuesday forecast global growth at 3.2% for 2024 - well below its 20-year pre-pandemic average of 3.8% - citing lackluster performances in Europe and China and the impact of high interest rates and regional wars on developing economies. And asset managers are bracing for delays in rate cuts as the U.S. Federal Reserve struggles with persistently high inflation.

The IMF boosted its U.S. growth forecast by 0.6 percentage point to an above-potential 2.7% for 2024, while cutting the forecast for the euro zone by 0.1 percentage point to 0.8%.

Georgieva said the U.S. has done a better job of harnessing technology innovation and turning it into scalable business activity. The U.S. also has benefited from domestic energy production that has kept energy prices low and immigration that has created an ample supply of labor without too much wage inflation.

Technology has not brought similar gains to Europe, she said.

"We know that in Europe, there is still work to be done to unleash the power of innovation. Just comparing the cost of a patent in the U.S. and the European Union tells you a story," Georgieva said, referring to higher EU costs and regulations.

More also can be done to raise investments in human capital to create more dynamic labor markets and better allocation of capital, she said.

CHINA CROSSROADS

Georgieva said China, where domestic demand is suffering because of a property crisis brought on by over-investment, was at a "fork in the road" and should pivot away from its decades-old investment- and export-led growth model to one led by consumer spending.

"The time has come to look at domestic sources for growth," she said of China.

This starts with resolving the property sector crisis to give consumers more confidence to spend, and expanding the social safety net, which would give Chinese people the "opportunity to save a bit less and spend a bit more," the IMF chief said.

U.S. Treasury Secretary Janet Yellen on a recent trip to China made similar arguments that Beijing should work to boost domestic consumption, while warning that the U.S. would not accept Chinese efforts to flood global markets with exports of electric vehicles and solar products as a way to revive growth.

© Reuters. International Monetary Fund Managing Director Kristalina Georgieva holds a press briefing on the Global Policy Agenda to open the IMF and World Bank's 2024 annual Spring Meetings in Washington, U.S., April 18, 2024.  REUTERS/Kevin Lamarque

Georgieva also called for more fiscal restraint among IMF member countries because fiscal capacity has been exhausted in most countries by the COVID-19 pandemic and the subsequent cost- of-living crisis, with heavy debt burdens more difficult to carry in a high interest rate environment. This message was echoed by the IMF's Fiscal Monitor on Wednesday, which said the U.S. and other major economies were spending too much during election years.

"In a world where crisis keeps coming, countries must urgently build fiscal resilience to be prepared for the next shock," Georgieva said.

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