The head of the International Monetary Fund Wednesday said the global economy will grow only modestly next year as emerging-market economies, particularly China, decelerate.
“Global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016,” said IMF Managing Director Christine Lagarde at a Council of the Americas event. “Emerging economies are likely to see their fifth consecutive year of declining rates of growth.”
The emergency lender plans to once again downgrade its outlook for the global economy, setting the tone for the fund’s annual meeting of finance ministers and central bankers in Lima, Peru, next week.
In July the IMF reduced its outlook for global growth this year by 0.2 percentage point to 3.3% and forecast that the world economy would expand by 3.8% next year. But China’s slowdown is rippling around the globe, feeding a fall in commodity prices and exacerbating decelerations in a host of other developing countries.
Brazil’s central bank, for example, is now forecasting a much deeper recession as the country is hit by weak commodity prices, rising borrowing costs, political turmoil and capital outflows as investors pull out of Latin American markets.
While the U.S. recovery is gathering steam and there are green shoots of growth in the eurozone and Japan, demand from advanced economies isn’t strong enough to pull emerging markets out of their funk.
And although emerging markets have built up bigger emergency currency reserves and are allowing their currencies to help absorb economic hits, Ms. Lagarde said she is concerned that many emerging markets may have expended their capacity to buffer against shocks in the wake of the financial crisis.
For those reasons the IMF is pushing the Federal Reserve to refrain from raising interest rates for the first time in nearly a decade until 2016, a move that would raise borrowing costs across the globe and add to the debt burdens that risk destabilizing many emerging-market economies. Fed officials are signaling, however, the U.S. central bank plans to increase rates before the end of this year.
Ms. Lagarde didn’t repeat the fund’s call for the Fed to delay, but said the U.S. and other advanced-economy central banks needed a “crucial policy upgrade” in better accounting for the global implications of their actions.
Advanced economies “should fully incorporate spillover risks in their decision-making process and, in addition, ensure that their communications are very clear in this regard,” the IMF chief said.