The global economy’s health is growing worrisome amid volatile financial markets and low commodity prices and is in dire need of collective action for getting buoyed, as per David Lipton, first deputy managing director of the International Monetary Fund.
Since the time the international lender lowered its 2016 growth forecast to 3.4% in January, perils to the world economy have got intensified, he said in a speech at Washington DC, news outlets reported.
He told the National Association for Business Economics that now is the time to decisively support economic activity and put the global economy on a sounder footing.
“The sharp retrenchment in global capital and trade flows “over the past year were cited as amongst the most disconcerting signs of trouble in the global economy.”
The economist said the world economy is in the midst of risks, including some new ones and they are not really far-off, which is a point that must be focused on.
Global economic growth is rebounding albeit with a base line, not so robust, as reported by CNBC. Risks surrounding the world economy encompass right from unfulfilled infrastructure requirements in the US to deflation in Japan.
Further, the world economy needs to shield itself from such risks while fortifying growth, by the means of combining monetary and fiscal policy and structural reforms, Lipton said.
Other concerns looming over global economy entail majorly leveraged sovereign and private sector balance sheets in Europe as also banks with mounting bad loans; sharp fall in capital spending and increasing private debt in emerging markets.
Consequently, the impact on financial markets is evident, with equity market index hitting a 6% low so far, suggesting loss of more than $6 trillion or 8.5% of world GDP, in global market capitalization, Lipton was quoted as saying.
The OECD reported on the same issue as well that their leading indicators are pointing towards an easing of growth in the UK, US, Canada, Germany, and Japan.
A further loss of growth momentum in the advanced economies alongside the already weak outlook for growth in developing economies would increase downside risks to the outlook for global growth and support safe haven demand for the yen.
However, the OECD’s leading indicator did provide a reassuring signal that there were “tentative signs of stabilization” in China.
Concerns Heighten
Lee Hardman, currency analyst at Japan’s Mitsubishi UFJ Financial Group, notes that the rebound in emerging and commodity related currencies lost some upward momentum Tuesday following the release of the weaker than expected Chinese trade report for February.
“The acute weakness in both exports and imports has cast some doubt on the building optimism over the outlook for the Chinese economy and re-heightened concerns over the outlook for global growth.
Recent comments from Chinese policymakers have signaled that they will play a more active role in supporting economic growth which has provided reassurance to global investors alongside the recent stability of the renminbi.
The smaller than expected drawdown in China’s forex reserves in February provided evidence that the capital outflows have eased in the near-term as well. However, our analysts in Hong Kong still expect the weakening of the renminbi to resume beyond the near-term.
They remain sceptical as well that policy stimulus will prove as effective as hoped in supporting economic growth given that the transmission mechanism is impaired by problems in the banking sector. It casts doubts over the sustainability of the recent rebound in emerging and commodity-related currencies which will require an improvement in the economic data from China in the coming months.”
