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Bumpy Road Ahead for Emerging Economies

Bumpy Road Ahead for Emerging EconomiesBumpy Road Ahead for Emerging Economies

The world’s lender of last resort, the International Monetary Fund, has said up-and-coming nations must do more to weather the fallout of weaker global growth and a slowdown in China’s economy.

The IMF’s managing director, Christine Lagarde, warned the emerging countries of the world that the road ahead could be “somewhat bumpy,” and urged them to be “vigilant for spillovers” from China’s slowdown, tighter global credit conditions and the prospect of an interest rate hike in the United States, RTE reported.

Lagarde also cautioned that global growth this year would be lower than previously anticipated. In July, the IMF forecast global economic expansion would reach 3.3%, slightly below last year’s 3.4%.

“Overall, we expect global growth to remain moderate and likely weaker than we anticipated last July,” Lagard told university students at the start of a two-day visit to Indonesia’s capital, Jakarta.

Emerging markets from Indonesia to Brazil have been especially hit by the slowdown in the world’s second largest economy, China. A slump in Chinese demand for commodities–a main staple of emerging economies exports–has stifled their growth and send their currencies reeling.

 China Adjusting

Lagarde said the IMF expected China’s economy to slow in the months ahead, although not sharply or unexpectedly, as it adjusts to a new growth model.

“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,” she said. She did add however that Chinese rulers had the policy tools and financial buffers to manage the transition.

According to the IMF, emerging economies are also facing weaker capital inflows than in years past because of a likely interest rate hike in the United States causing investors to re-direct financial investments. The US rate hike, expected for later this year, will also tighten global credit conditions, making re-financing costlier for states and businesses.

In the opinion of the IMF director, at least Indonesia was “better prepared than ever before” to face the global headwinds. Southeast Asia’s largest economy had the “right tools to actually react,” as it had sound public finances and a relatively small deficit, she told journalists, following a meeting with the country’s president Joko Widodo.

  Confidence  in Asia

Recent volatility in global financial markets demonstrated how much Asia is at the core of the global economy and there is reason for continued confidence in the region as the region’s governments fully understand from past experience how to tackle such problems, she said.

Lagarde said some Asian economies have gained their place among the advanced economies, while some have achieved emerging market status. “Others are still climbing the ladder of development. Together they have become a key source of global growth,” she added.

Lagarde praised Asian countries for using bitter experience from the region’s financial crisis in 1997 to withstand the 2007-08 global financial crisis and the 2013 Taper Tantrum.

Financialtribune.com