The International Monetary Fund (IMF) is warning that the global economy will be weak and slow for the remainder of the year and into 2016. According to the head of the IMF, global economic growth won’t pick until late in 2016.
IMF Managing Director made these remarks in a speech that previewed a report scheduled to be released sometime this month. Analysts say that she appears to be a lot more cynical than previous IMF forecasts. In July, the IMF had forecast a slowdown in the global economy with just 3.3 percent growth in 2015 and 3.8 percent growth in 2016.
Lagarde’s comments came prior to the collapse in global stock markets, thanks in part to the bursting of China’s economic bubble. She believes China needs to shift away from its commodity investment and focus on safeguarding “demand and financial stability.”
When looking at the global economy, Lagarde stated that the United States and British economies are robust, while there is some momentum being felt in Japan and eurozone.
“The not-so-good news is that emerging economies are likely to see their fifth consecutive year of declining rates of growth,” she said. “Global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016.”
She warned that there will be a “prolonged period” of low prices for commodities. This is bad news for developing countries where commodities are essential to their economies. With this information, Lagarde is urging emerging markets to diversify their economies. This will help them weather any sort of financial crisis that would stem from the Federal Reserve raising interest rates for the first time since 2008.
Moreover, the IMF believes public officials in developing countries need to keep an eye on debts that are denominated in U.S. dollars. The reason why they should be concerned is because emerging markets have accumulated $18 trillion, and any potential rate hike could create a wave of bankruptcies.
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