Global economic growth will be "disappointing" next year, the head of the International Monetary Fund said in a guest article for German newspaper Handelsblatt published on Wednesday.
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, Reuters reported.
In addition, 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, Lagarde added.
"All of that means global growth will be disappointing and uneven in 2016," Lagarde said, adding that low productivity, ageing populations and the effects of the global financial crisis were putting the brakes on growth.
She said the start of normalization of US monetary policy and China's shift towards consumption-led growth were "necessary and healthy" changes but needed to be carried out as efficiently and smoothly as possible.
The US Federal Reserve hiked interest rates for the first time in nearly a decade earlier this month and made clear it was a tentative beginning to a "gradual" tightening cycle.
There are "potential spillover effects", with the prospect of increasing interest rates already having contributed to higher financing costs for some borrowers, including in emerging and developing markets, Lagarde said.
Warns of Defaulting
She added that while countries other than highly developed economies were generally better prepared for higher interest rates than they had been in the past, she was concerned about their ability to absorb shocks.
"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 warned that rising US interest rates and a stronger dollar could lead to firms defaulting on their payments and that this could then "infect" banks and states.
Resolutions
Referring to what transpired in the outgoing year, Project Syndicate said, over the last year, global growth was anemic–and the forecast is only slightly better for 2016. Something must be done to boost incomes and expand opportunities for people everywhere.
In Europe, despite the European Central Bank’s monetary accommodation, a sharp depreciation of the euro, and negative short-term interest rates, the European economy remains in the doldrums.
In 2016, Europe’s leaders must stop expecting monetary policy to solve their problems, and instead pursue faster, firmer resolutions to the myriad crises they face, from the intertwined growth, banking, currency, and governance crises to the escalating refugee crisis, which is threatening free movement across internal borders.
In Latin America, the situation is more varied. After a decade of progress (with some exceptions, notably Venezuela), the region is facing serious challenges, stemming partly from a sharp decline in global commodity prices.
Indeed, plummeting oil prices helped to push the region’s largest economy, Brazil, into its worst recession in decades, while a major corruption scandal at Petrobras, the state oil company, has thrown the country’s politics into disarray, with President Dilma Rousseff now facing impeachment. This makes the pursuit of economy-saving resolutions exceedingly difficult.
Political instability is undermining economic prospects elsewhere, too. In Ecuador, high inflation is a growing risk.
In Asia, all eyes are on China, the epicenter of a growth slowdown that has reverberated throughout the region (and beyond). The remarkable growth spurt of the last three decades has degraded the natural environment considerably, produced vast excess capacity in basic industries like cement and steel, and left the banking system saddled with bad loans.
Japan, for its part, has sunk back into recession, despite Prime Minister Shinzo Abe’s large and costly economic-revitalization strategy.
Africa has been a less visible success story in the last decade. Despite the many difficulties the continent faces, foreign investment and trade (not aid) provide major opportunities for growth and development.
