1 Oct 2015

IMF head warns of weaker global growth

6:34 pm on 1 October 2015

The head of the International Monetary Fund (IMF) has warned of weaker global growth.

IMF managing director Christine Lagarde speaks about the world financial situation and the upcoming 2015 IMF / World Bank Annual Meetings during a Council of the Americas event in Washington, DC, on 30 September 2015.

IMF managing director Christine Lagarde speaks about the world financial situation at an event in Washington on 30 September. Photo: AFP

Christine Lagarde said its forecasts would show activity expanded by less than the 3.4 percent recorded last year - its lowest level since the recession of 2009.

She also said she expected there would be only a modest acceleration in 2016.

And she warned there could be an economic "vicious cycle" caused by higher US interest rates and the Chinese slowdown.

She said these threats could jeopardise recent economic gains in Asia, Latin America and Asia.

Ms Lagarde was addressing the Council of the Americas ahead of next week's IMF and World Bank annual meetings and the release of the Fund's World Economic Outlook on Tuesday.

She said: "The good news is that we are seeing a modest pickup in advanced economies. The moderate recovery is strengthening in the euro area; Japan is returning to positive growth; and activity remains robust in the US and the UK as well.

"The not-so-good news is that emerging economies are likely to see their fifth consecutive year of declining rates of growth."

'Rapid drop'

She added: "On the economic front, there is ... reason to be concerned. The prospect of rising interest rates in the United States and China's slowdown are contributing to uncertainty and higher market volatility.

"Rising US interest rates and a stronger dollar could reveal currency mismatches, leading to corporate defaults... and a vicious cycle between corporates, banks, and sovereigns," Ms Lagarde added.

She also pointed to the "sharp deceleration" in the growth of global trade and the "rapid drop" in commodity prices, which is damaging the finances of commodity-exporting emerging market economies.

New Zealand's economy is already feeling the effects of lower dairy prices, though analysts say high levels of construction and rising immigration will underpin activity.

- BBC

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