16 June 2019

Global Growth Prospects Become Weaker

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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.

Click here to access the full article on USA Today.

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