Lagarde Predicts Sluggish, Uneven Growth in Global Economy

1 Oct 2015 | Author: | No comments yet »

‘Who likes to pay tax? You don’t, I don’t': IMF chief.

WASHINGTON — The head of the International Monetary Fund said on Wednesday that global growth would probably be weaker this year as the world economy confronts a host of problems, including a refugee crisis in Europe, an economic slowdown in China and a pending rise in United States interest rates. The fund’s managing director, Christine Lagarde, predicted a moderate rebound in growth in advanced economies such as those of the United States, Europe and Japan. But her comments appeared to be more pessimistic than the global lender’s forecast made in July, just before global financial markets erupted into turmoil over concerns that China’s economy could crash. You don’t, I don’t, nobody does,” said the IMF managing director, in response to a question about an increase in Greece’s value-added tax (VAT) called for by the country’s creditors, including the IMF.

Ms Lagarde said China needs to keep trying to rebalance its economy away from commodity-intensive investment but also must be careful to safeguard “demand and financial stability.” In a survey of the global economy, she said growth was picking up in the euro area and Japan and still looked robust in the US and Britain. Ms Lagarde warned there could be a “prolonged period” of low prices for the commodities that are central to the economies of many developing countries. Lagarde said potential growth is being held back by low productivity, aging populations and lingering problems from the 2008 financial crisis such as high debt levels.

The Washington-based IMF caused a furor in 2013 by calling for an exceptional 10 percent tax on private wealth in Europe to help close gaps in public deficits. She urged emerging markets to diversify their economies and said some of them might be ill prepared to weather the financial storm that could arise when the US Federal Reserve eventually raises interest rates.

She said it will be critical to properly manage the transition in China to consumer-led growth and the pending move by the Federal Reserve to higher interest rates. Policy makers in emerging markets should keep a closer eye on company debts denominated in dollars as well as to the banks that lent to them, she said. In a speech previewing next week’s annual meetings of the 188-nation IMF and its sister lending agency, the World Bank, Lagarde said that currently global growth is “disappointing and uneven,” with many emerging market nations losing revenue from falling prices of commodities such as oil.

The IMF said on Tuesday emerging market firms have racked up debts of $18-trillion and rate hikes in the developed world could spur a rash of corporate bankruptcies. But she noted that Russia and Brazil were facing “serious economic difficulties,” with growth also slowing sharply in many Latin American countries.

She did not repeat her previous comment that the Fed should wait until 2016 to raise rates, but she underscored the importance of being certain of the decision.

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