As global economy meets headwinds, China should focus on five areas to pursue economic growth: former IMF secretary

Global economic growth has slowed dramatically amid rising uncertainties and faced with various challenges this year. What does the future hold for the world economy? For answers to questions like this one, People's Daily Online recently had an exclusive interview with Lin Jianhai, vice president of the International Finance Forum (IFF) and former secretary to the International Monetary Fund (IMF).

According to a recent growth forecast by the IMF, the global economy grew 6 percent in 2021. That figure was revised down to 3.2 percent for 2022, and to 2.7 percent for 2023.

Lin pointed out that the lowering of global growth is associated with the negative impact from the COVID-19 pandemic, a damaged global supply chain, soaring energy and food prices, austerity policies issued by central banks of major developed economies, and the impact of the Russia-Ukraine conflict.

However, the IMF believes that the worst is yet to come for the global economy, and next year will probably be more difficult than this year, Lin added.

The IMF has predicted that economies which account for one-third of the global economy are expected to go into recession this year or next. In addition, there is a 25 percent likelihood that global economic growth will fall below 2 percent, and 10 to 15 percent likely that global economic growth will be lower than 1 percent, Lin explained.

The IMF recently said that inflationary pressures on the global economy will be larger and last longer than expected, while predicting that this year's global inflation rate will be as high as 9.5 percent. In many developed economies, that figure has approached or already exceeded 10 percent, the highest level in the last few decades.

Many emerging markets and developing countries are also facing severe difficulties, Lin said.

The dramatic changes the global economy has undergone has brought a negative impact on these markets and countries in many aspects, including sluggish export demand caused by the global economic slowdown, more difficulties and rising costs associated with financing as a result of interest rate hikes by developed economies and tightening conditions in the global financial market, heavier debt burdens for emerging economies and developing countries as a result of interest rate hikes in the U.S. and appreciation of the U.S. dollar, and a possible economic crisis and even social chaos caused by energy and food prices remaining high, Lin analyzed.

The global economy will face major challenges in several aspects for a certain period of time to come, Lin said.

First, for developed economies, the top priority is to control and lower inflation rates. The IMF believes that the central banks of major developed economies must continue to push forward a tighter monetary policy if they are to see a notable result next year.

Former U.S. Treasury Secretary Lawrence Summers said that according to prior experience, the U.S. needs five years of unemployment at above 5 percent to contain inflation. However, the current unemployment rate in the U.S. is 3.7 percent, and bringing it to 5 percent and above is no easy task, not to mention the fact that this move will have a severe negative impact on the U.S. economy, Lin said.

Second, for emerging markets and developing countries, slow growth, high commodity prices and heavy debt pressure are urgent issues they currently face. In terms of debt pressure, emerging economies and developing countries have faced heavier debt burdens this year as a result of interest rate hikes by the U.S. and appreciation of the U.S. dollar.

Third, from a medium- and long-term perspective, many economies face stagnant economic growth, a lack of driving force for productivity, labor force declines, and pressures from climate change. To cope with these challenges, countries must speed up economic innovation and structural reform, Lin pointed out.

Fourth, deglobalization has brought great difficulties and uncertainties to global economic development and cooperation, and the mindset that calls for countries to do business with their allies and reduce dependence on countries that are not allies to guarantee reliability of the supply of key commodities will result in an unpredictable influence and consequences for future international trade and financial activities.

In addition, increasing geopolitical risks, especially economic sanctions imposed during the Russia-Ukraine conflict, have aggravated the fragmentation of the global economy, Lin pointed out.

Fifth, dealing with climate change and promoting a green transition is a challenge as well as an opportunity. In order to realize the objective of keeping the increase in the global average temperature rise to below 2 degrees Celsius, all countries need to significantly reduce their greenhouse gas emissions.

In the face of growing uncertainties, China should guarantee both quality and quantity while developing its economy. Both factors are important and are key to achieving sustainable and high-quality development, and also serve as a major guarantee for the country to become a high-income country, Lin said.

He stressed that China should pay attention to the following aspects:

The first is to maintain a steady macroeconomic environment, which is a precondition for achieving sustainable and high-quality development.

The second is to shift the driving force for economic development and improve productivity. The key is shifting from pursuing growth with technologies learnt from other countries to achieving growth with technologies in which China has a leading position. This is key to achieving sustainable and high-quality development.

The third is to constantly improve the financial system, and further promote and develop the service industry. This builds a bridge for China to achieve high-quality development.

The fourth is to adhere to high-level opening-up and promote international exchanges in areas such as trade, finance, investment, and people-to-people and educational exchanges, and also to take an active part in international affairs and decision-making. This is a prerequisite for sustainable and high-quality development.

The fifth is to continue to promote reciprocal, inclusive and green growth, and enhance people's wellbeing. This is the ultimate goal of high-quality development.