Global
growth will be disappointing in 2016: IMF's Lagarde
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[December 30, 2015]
By Michelle Martin
BERLIN (Reuters) - Global economic growth
will be disappointing next year and the outlook for the medium-term has
also deteriorated, the head of the International Monetary Fund said in a
guest article for German newspaper Handelsblatt published on Wednesday.
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IMF Managing Director Christine Lagarde said the prospect of rising
interest rates in the United States and an economic slowdown in
China were contributing to uncertainty and a higher risk of economic
vulnerability worldwide.
Added to that, growth in global trade has slowed considerably and a
decline in raw material prices is posing problems for economies
based on these, while the financial sector in many countries still
has weaknesses and financial risks are rising in emerging markets,
she said.
"All of that means global growth will be disappointing and uneven in
2016," Lagarde said, noting that mid-term prospects had also
weakened as low productivity, ageing populations and the effects of
the global financial crisis dampened growth.
In October the IMF forecast that the world economy would grow by 3.6
percent in 2016.
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Lagarde said the start of a normalization of U.S. monetary policy
and China's shift toward consumption-led growth were "necessary and
healthy" changes but needed to be carried out as efficiently and
smoothly as possible.
The U.S. Federal Reserve hiked interest rates for the first time in
nearly a decade this month and made clear that was a tentative
beginning to a "gradual" tightening cycle.
There are "potential spillover effects", with the prospect of
increasing interest rates there already having contributed to higher
financing costs for some borrowers, including in emerging and
developing markets, Lagarde said.
While countries other than highly developed economies were generally
better prepared for higher interest rates than previously, she was
concerned about their ability to absorb shocks, she said.
Emerging market companies with debt in dollars and revenue in
sinking local currencies could struggle as the Fed begins what is
expected to be a series of interest rate increases.
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Lagarde warned that rising U.S. interest rates and a stronger dollar
could lead to companies defaulting on their payments and that this
could "infect" banks and states.
But she said the risks associated with these changes could be
overcome by supporting demand, maintaining financial stability and
reforming structures.
"Most highly developed economies except the USA and possibly Britain
will continue to need loose monetary policy but all countries in
this category should comprehensively factor spillover effects into
their decision-making," Lagarde said.
She said emerging markets needed to improve monitoring of the
foreign exchange risks their big companies face.
Lagarde also said countries which export raw materials and had scope
for fiscal policy measures should use that so they can adjust more
smoothly to lower prices. Others should focus on restructuring their
budgets in a growth-friendly way such as through tax and energy
price reforms and changing their spending priorities, she said.
(Editing by Louise Ireland)
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