The head of the International Monetary Fund said
Wednesday that global growth will be weaker than anticipated and urged both
advanced and emerging economies to enact reforms and stimulus measures to
combat the slowdown. The IMF is slated to release its revised global growth
forecasts at the meetings next week. But Lagarde said, global growth will
likely be weaker this year than last, with only a modest acceleration expected
in 2016.
Her remarks suggest the fund is likely to revise down its
July forecasts, which called for 3.3% global growth this year and 3.8% in 2016.
The world economy grew 3.4% in 2014. Much of the weakness can be traced to
China's slowdown as it transitions to a consumption driven economy and declining
growth rates in countries such as Russia, Brazil and Latin America.
Potential growth is being held back by low productivity,
population aging, and the legacies of the global financial crisis, including
high debt, low investment and weak banks, particularly in Europe, Lagarde
added. At the same time, she said, the U.S. Federal Reserve is poised to raise
interest rates for the first time in nine years as the domestic economy
improves.
She said these developments are creating "spillover
effects." For example, China's slowdown is driving down commodity prices
and hurting countries that rely heavily on China to purchase their commodities,
such as oil and iron ore. And Fed rate hikes are expected to strengthen the
dollar, increasing the debt burden of emerging markets that borrowed in
dollars.
To bolster growth Lagarde recommended that:
• Eurozone countries address about $1 trillion in
nonperforming loans will to loosen will bank credit to companies and household.
• Emerging economies increase oversight of banks to ensure
their stability amid their exposure to foreign currency gyrations.
•Advanced economies, such as the US, boost public
infrastructure investment.
• Commodity exporting countries, such as Columbia and
Brazil, enact tax reforms, reprioritze spending to better withstand reduced
revenue and eliminate government subsidies that keep energy prices artificially
low.
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