Europe - China's top export market - has been hit by a severe debt crisis that has seen a wave of credit-rating downgrades and brought Greece to the brink of bankruptcy, sparking concern across the world.
Lagarde said some of the policy actions taken - particularly by the European Central Bank and some European countries - had helped stabilise the overall situation.
Most EU nations agreed in January to a treaty that will require governments to introduce laws on balanced budgets and impose near-automatic sanctions on countries that violate deficit rules.
The looming threat of a Greek default has receded after a large majority of the country's private creditors agreed to a bond swap that will see them accept losses and wipe some €100 billion ($160 billion) off Athens' debt.
In the US, meanwhile, the economy is showing signs of improvement with better consumer and business spending and an improved job market, even if there is still high unemployment and a depressed housing sector.
But Lagarde warned there were still major vulnerabilities, with public and private debt still high in many advanced economies, oil prices rising, and the risk of slowing activity in emerging nations.
She also praised China for its "leadership and adept policy skills" in the global financial crisis, but said it should continue to move away from its dependency on exports and investment, and focus more on domestic consumption.
- AAP
