Sat, Feb 06, 2016 - Page 15 News List

Lag in emerging markets a global risk: IMF chief


IMF managing director Christine Lagarde on Thursday said that the slowdown in emerging-market economies could lead to rising inequalities in the global economy.

In the wake of China’s cooling economy and the steep fall in commodity prices, the emerging-market economies are seeing growth falter and are facing “a new, harsh reality,” Lagarde said in a speech at the University of Maryland.

“Growth rates are down, capital flows have reversed and medium-term prospects have deteriorated sharply,” the IMF head told a forum, according to the prepared text of her speech.

China posted its weakest growth in a quarter of a century last year, and Brazil and Russia are in recession.

The IMF now projects that income levels of the emerging and developing economies will converge to advanced economy levels at less than two-thirds the pace it predicted a decade ago, Lagarde said.

“This means that millions of poor people are finding it more difficult to get ahead. And members of the newly created middle classes are finding their expectations unfulfilled,” she said.

The consequences of the interconnected global slowdown would not be merely economic, she said: “It also carries with it the risk of rising inequality, protectionism and populism.”

To address the growing global weakness, Lagarde recommended that emerging-market economies improve their spending policies and increase non-commodity revenues.

And to boost growth, Lagarde called on both advanced and emerging economies to step up efforts to open up global trade systems.

Meanwhile, China’s economy can avoid a “hard landing” and shift to a lower, more sustainable growth rate if Beijing pursues reforms to state enterprises and sticks to a more market-driven and well-communicated exchange rate policy, Lagarde said.

“China is going through that massive, multi-faceted transition and we do not expect a hard landing,” Lagarde said.

However, Lagarde also said she anticipated increased demand from emerging markets for financial support from the IMF and other multilateral institutions as they struggle with slower global growth due in part to China’s economic transition.

Additional reporting by Reuters

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