The International Monetary Fund (IMF) said today (September 1st) that global economic growth is likely to be weaker than expected.
In July this year, it cut its global growth forecast to 3.3 per cent in 2015, down from a 3.5 per cent initial forecast made in April.
The IMF said this is due to a slower recovery in advanced economies and a further slowdown in emerging nations.
"Overall, we expect global growth to remain moderate and likely weaker than we anticipated last July. This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economies, especially in Latin America," IMF managing director Christine Lagarde said in a speech at the University of Indonesia in Jakarta.
"Asia as a region is still expected to lead global growth. But even here, the pace is turning out slower than expected – with the risk that it may slow even further given the recent spike in global risk aversion and financial market volatility," she added.
China slowdown spillovers
She also warned emerging economies to "be vigilant for spillovers" from China's slowdown, tighter global financial conditions and the prospects of a US interest rate hike.
Last month, the IMF urged the US Federal Reserve not to raise interest rates this year. It said in a report that a 2015 rate hike risks adding to the growing economic and political threats to US growth.
The IMF also warned that a rate rise would trigger more gains in the value of the dollar, at a time US share prices are hitting unsustainable levels. The dollar has risen about 20 per cent against a basket of currencies during the past 12 months and "growth could be significantly debilitated" by another rise in the dollar, it said.
However, Christine Lagarde today sought to reassure markets after the recent stock crash in China. "As the Chinese economy is adjusting to a new growth model, growth is slowing – but not sharply, and not unexpectedly," she said.
"The transition to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy. That said, the authorities have the policy tools and financial buffers to manage this transition. Other emerging economies, including Indonesia, need to be vigilant to handle potential spillovers from China’s slowdown and tightening of global financial conditions."
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