Global economic growth outlook 'disappointing'

China slowdown, rising US interest rates adding to uncertainty for 2016: IMF chief

BERLIN • Global economic growth will be "disappointing" next year, said International Monetary Fund managing director Christine Lagarde.

Ms Lagarde, in an article published yesterday in the German daily Handelsblatt, 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.

Also, growth in global trade has slowed considerably, and a decline in raw material prices is posing problems for some economies while the financial sector in many countries still has weaknesses, and financial risks are rising in emerging markets, Ms Lagarde wrote.

"All of that means global growth will be disappointing and uneven in 2016," Ms Lagarde said, adding that low productivity, ageing populations and the effects of the global financial crisis were putting the brakes on growth.

IMF managing director Christine Lagarde said low productivity, ageing populations and the effects of the global financial crisis were putting the brakes on growth.

She said the start of normalisation 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 earlier this month hiked interest rates for the first time in nearly a decade and made clear that it was a tentative beginning to a "gradual" tightening cycle.

There are "potential spillover effects", with the prospect of increasing interest rates there already having contributed to higher financing costs for some borrowers, including in emerging and developing markets, Ms Lagarde said.

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 US 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," she wrote.

She added that rising US interest rates and a stronger US dollar could lead to firms defaulting on their payments, and that this could then "infect" banks and states.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 31, 2015, with the headline 'Global economic growth outlook 'disappointing''. Print Edition | Subscribe