Downside risks to the global economy have risen and a combination of threats including slower growth in China and rising market volatility could severely cut the outlook, IMF staff said on Wednesday.
A note prepared by IMF staff for a meeting of G20 finance officials describes a cocktail of potentially dangerous risks ranging from a stronger US dollar to depreciating currencies in emerging markets, falling commodity prices and weaker capital inflows.
“Risks are tilted to the downside and a simultaneous realization of some of these risks would imply a much weaker outlook,” said the note, prepared for the G20 meeting in Ankara, Turkey, today and tomorrow.
The IMF in July lowered its global growth forecast for this year to 3.3 percent and forecast growth in China — where a currency devaluation and growth concerns have fanned sharp moves on global financial markets — would slow to 6.8 percent.
The US economy would likely grow 2.5 percent this year, while the 19-country eurozone would grow 1.5 percent, the IMF forecast.
In an interview with CNBC on Wednesday, US Secretary of the Treasury Jack Lew warned China against manipulating its currency to give its exporters an unfair advantage.
“We are going to hold them accountable,” he said.
IMF staff said China should keep up reforms to liberalize its economy, despite the market gyrations.
“The recent sharp equity market corrections should not discourage the authorities from continuing with reforms to give market mechanisms a more decisive role in the economy, eliminate distortions and strengthen institutions,” the note said.
The need for policies to boost growth among G20 nations has become more urgent in the last six months and accommodative monetary policy in advanced economies was “essential,” the note said, also stressing the case for structural reforms to boost potential output and productivity.
The US Federal Reserve, whose next policy meeting on Sept. 16 and 17 is being keenly awaited to see if it will raise benchmark interest rates for the first time since 2006, should keep its decisions “data-dependent,” the note said.
In June, IMF managing director Christine Lagarde advised the Fed to delay a rate hike until next year. She said that the risk of raising rates prematurely — and damaging the US and global economies — outweighed the risk of waiting too long and allowing inflation to creep up.
The Bank of Japan should stand ready for further easing and the European Central Bank should extend its asset-buying program unless inflation, which is showing signs of stabilization, picks up sufficiently, the note said.
While economic activity in advanced economies is projected to pick up modestly this and next year, the outlook for emerging markets was more worrisome and the policy response trickier.
Although allowing currencies to depreciate was critical for countries with limited room to cut interest rates or boost spending, weaker exchange rates could worsen the outlook for inflation, the note said.
Additional reporting by AP
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by