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IMF warns China of cost of Covid lockdowns | Global economy

China, the world’s second-largest economy, should review its zero-tolerance approach to the pandemic or risk damaging the global recovery, according to the head of the International Monetary Fund.

Kristalina Georgieva said that Beijing should reassess the use of lockdowns to limit the spread of the highly contagious Omicron variant, as it became clear that the damage to human health was less serious than the Delta variant.

Speaking at the World Economic Forum in a virtual panel, he said that while the hard-line approach had contained the pandemic in China for “quite a while”, the restrictions were now proving to be a burden on the economy in China and around the world. .

Earlier this month, millions of people in Henan province were placed under lockdown after China’s national health commission reported 87 new locally transmitted COVID-19 cases.

Other provinces have also been hit by lockdowns in recent weeks, while Hong Kong has barred passengers from 150 destinations from coming to the island.

Georgieva said that the slowdown in economic growth in China was due to disruptions caused by the Covid-19 lockdowns, which hurt consumer spending.

“China is still using a zero covid policy. But what Covid is teaching us all is that a highly transmissible variant can be much more difficult to contain without a dramatic impact on the economy,” he said.

The IMF chief also chided Chinese authorities for withdrawing financial support too soon to protect workers and businesses, saying the economy still needed government subsidies and the central bank to keep interest rates low.

Earlier this week, the People’s Bank of China cut the prime mortgage rate. Many analysts in the City believe there could be more rate cuts to come.

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Officials at the US Federal Reserve were praised for signaling a rise in interest rates in advance, allowing US and foreign companies that have borrowed money in dollars to prepare for higher interest payments.

But Georgieva warned the US that a sharp rise in interest rates would hurt many already heavily indebted developing countries struggling to cope with the pandemic, forcing them to seek help from the IMF.

The Fed is expected to raise interest rates next week in response to a spike in prices that pushed inflation to 7%.

The IMF warning came as Catherine Mann, a member of the Bank of England’s rate-setting monetary policy committee, said inflationary pressures in the UK could remain “strong for longer” amid worsening cost of life.

The independent economist on the nine-member panel said there was little sign that high global shipping costs for businesses would soon go away amid continued disruption from the pandemic, while rising energy costs and wage deals higher rates for workers could generate stronger levels of inflation.

“It should be a concern that 2021 costs are reflected in price expectations for 2022,” he said.

In comments ahead of the next Threadneedle Street rate-setting meeting on February 3, he said the Bank should “lean against” expectations that inflation will remain persistently high. Analysts expect the central bank to raise rates to 0.5%, after raising its key interest rate from a record low of 0.1% to 0.25% in December.

In a statement that seemed to reveal his preference for the central bank to convey the need for higher rates without accelerating the pace of hikes planned for this year, he added: “The ingredients appear to be in place for inflation to stay strong for longer.” , but the costs that are embedded in the prices to create a reinforcing dynamic is not inevitable”.

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