China's economy is in transition and fears of it crashing are misplaced, the head of the International Monetary Fund (IMF) has said. According to Christine Lagarde, the outlook for the world's second largest economy was not all "doom and gloom" and that the slowdown was largely the result of shifting from an export-led to a more consumer-driven economy.

China's economy expanded 7.3% in 2014, with the IMF expecting growth to slow to about 6.8% this year. "I would say that it's a recovery that is decelerating a bit", Lagarde told the BBC, but predicted growth to pick up again next year.

"We are seeing massive transitions at the moment. Whether you look at China transitioning from one growth model to the other, from one exchange currency method to another ... we are having to adjust as a result."

The IMF chief welcomed China's efforts to rebalance its economy to a more sustainable growth model and stated that bumps were to be expected along the way. "You don't move just overnight from being heavily controlled to being market determined, with massive market expectations that suddenly the situation should be the same across the world ... It just doesn't happen that way," she explained.

Policy challenges

Earlier this week, the IMF cut its forecast for global growth to 3.1% this year from 3.3%, with only a modest acceleration to 3.6% predicted for 2016. "Such growth prospects are not enough to significantly reduce global unemployment and further reduce poverty levels," Lagarde said at a news conference at the IMF's annual meeting in Lima, Peru, on 8 October.

Christine Lagarde
Lagarde is in Peru for the IMF/World Bank annual meeting from 9-11 October Reuters

She urged global policymakers to "upgrade their policy recipes to reinvigorate growth and reduce global uncertainty. "I would simply insist on the policy mix that can be applied in order to move from an uneven and modest recovery, which has decelerated to something that is definitely stronger," she added.

The prospect of rising interest rates in the US, China's slowdown, and persistently low commodity prices all posed risks to global growth, but they can be surmounted with the right policies, strong leadership and global co-operation, she stressed.