The global economy may be on a path to recovery as signs of stabilization emerge from the eurozone and the United States, managing director of the International Monetary Fund, Christine Lagarde, said on Sunday.
As the global economy struggles to recover, Lagarde also praised China's leadership and influence in contributing to global economic stability.
"The financial market conditions are more comfortable and recent economic indicators are beginning to look a little more upbeat Europe has taken an important step forward in solving its crisis with the latest efforts on Greece," Lagarde said in a speech in Beijing.
These signs showed that policy actions taken in the wake of the global financial crisis are paying off, she said.
"On the back of these collective efforts, the world economy has stepped back from the brink and we have cause to be more optimistic," she added.
However, Lagarde said: "Optimism must not lull us into a false sense of security. There are still major economic and financial vulnerabilities that we must confront."
Lagarde cited the still fragile financial systems as the first of major risks, and said the amount of eurozone public sector and bank rollover funding needed in 2012 was equivalent to about 23 percent of GDP.
Meanwhile, rising oil prices, high unemployment rates and the possible slowdown of emerging economies also posed threats to growth, the IMF chief warned.
"So, the global economy may be on a path to recovery, but there is not a great deal of room for maneuver and no room for policy mistakes," she said.
In response to these issues, she urged advanced economies to continue with macroeconomic support and a balanced fiscal policy, together with financial sector reforms and structural and institutional reforms to repair the damage done by the crisis and to improve competitiveness.
Meanwhile, emerging market economies needed to calibrate macroeconomic policies both to guard against fallout from the advanced economies and to keep overheating pressures in check, she said.
Lagarde made the remarks at a forum on China's development, after her meeting with Vice-Premier Li Keqiang, where they discussed reforming the IMF.
Li expressed China's support for IMF during the meeting. "China expects the IMF to further proceed its reform process and better fulfill its role in stabilizing the global economy and international financial market," he told Lagarde.
Ahead of the meeting, IMF spokesman Gerry Rice was quoted by Agence France-Presse as saying that the discussions "would also touch on a broad number of issues, including the state of the global economy, the implications of the eurozone crisis and the status of progress in the Chinese economy".
Lagarde said China had showed leadership and adept policy skills when the global financial crisis exploded and things might have been worse except for the impetus it provided to growth and stability.
China unveiled a massive 4 trillion yuan ($635 billion) stimulus package for its economy at the end of 2008 as the financial crisis reverberated around the world and global trade shuddered to a standstill.
The package helped China withstand the downturn and kept annual economic growth ticking along above 9 percent in each of those two years, while developed economies struggled to stop their financial sectors from collapsing.
Lagarde further praised what she said was China's leadership and influence in global institutions, such as the IMF and G20 group of the world's 20 biggest economies.
"China has been instrumental in helping to make the global economic system less prone to damaging crises," she said, adding that lingering weaknesses in the global outlook reinforced the importance of China maintaining a prominent role in global policy discussions and accelerating reform in its own economy.
The IMF chief said it was crucial that the world's major economies work together with the same objective.
"We are all interconnected and we are all affected by each other's policy actions. We need to prepare for success together. If we stand together, the whole will be more than the sum of its parts," Lagarde said.
Lan Lan and Reuters contributed to this story.