International Monetary Fund (IMF) chief Christine Lagarde said on Wednesday that the global growth this year is likely to be weaker and only a modest acceleration should be expected in 2016. There was still a bright spot, especially for India, as Lagarde said:
“China is slowing down as it rebalances away from export-led growth. Countries such as Russia and Brazil are facing serious economic difficulties. Growth in Latin American countries, in general, continues to slow sharply.”
Lagarde then went on to explain that even in low-income countries there was weaker activity, which will only get worse looking a the external environment they were facing:
“At the global level, there is still a drag on the economy because financial stability is not yet assured.”
She then proceeded to note that despite the fact that the world saw progress in recent years, the financial sector of majority of the countries still remained weak and the financial risks only elevated in majority of the emerging markets. Thus looking at all these factors, she believes that growth would likely be weaker globally in year and overall there would be just a modest acceleration in 2016.
Though even with a modest growth, there were some positives to be seen on the global economic front according to IMF chief, who said that the economies of few countries could already be seen picking up.
“The good news is that we are seeing a modest pickup in advanced economies. The moderate recovery is strengthening in the Euro Area; Japan is returning to positive growth; and activity remains robust in the US and the UK as well.”
Though Lagarde’s biggest concern remained China and the USA :
“There has been a sharp deceleration in the growth of global trade. And the rapid drop in commodity prices is posing problems for resource-based economies, it has launched deep structural reforms to lift incomes and living standards. The new model relies more on consumption and less on commodity-intensive investment. More on services and less on manufacturing. In other words, China’s policymakers are facing a delicate balancing act: they need to implement these difficult reforms while preserving demand and financial stability.”
Looking at the above, the IMF chief felt that the situation could also create spillover effect – through trade, exchange rates, asset markets, and capital flows, she said:
“We saw some of these spillovers in recent months: investors were worried about the speed at which China’s economy is slowing. These concerns put further pressure on commodity markets and triggered sizeable currency depreciations in a number of commodity exporters. Those countries have, for many years, relied on China as an export destination. For example, China consumes 60 per cent of the world’s iron ore. But as it invests less, China will reduce its appetite for commodities.”
Looking at the situation the IMF chief assured that IMF will contribute to what could be a prolonged period of low commodity prices, but this kind of change will be require to to be managed by policy makers, especially in countries that act as a large commodity exporters.