Christine Lagarde, the head of the International Monetary Fund (IMF), recently suggested that global economic growth will be “disappointing” this year.
The IMF is a global financial organisation which includes 188 countries around the world. According to its website, the IMF works to “foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”
Thus, the organisation is seen as a major authority on international economic matters, and it regularly publishes predictions concerning global economic growth. The Fund wrote in its October 2015 World Economic Outlook that it expected the global economy to grow by 3.1% in 2015 – this is 0.2% lower than the prediction the IMF made in its July 2015 World Economic Outlook.
According to US financial news outlet, CNN Money, the IMF has projected the international economy will expand by 3.6% this year. Yet the body’s head, Christine Lagarde, recently wrote in German newspaper Handelsblatt that a possible slowdown in emerging economies could result in “disappointing” global economic growth in 2016.
Writing for Handelsblatt, Lagarde was quoted by Yahoo News saying: “In many countries the financial sector still has weaknesses and in emerging markets the financial risks are increasing. All of that means global growth will be disappointing and uneven in 2016.” She argued that slowing growth in global trade, an expected decline in raw material prices, aging populations, low productivity and the ongoing effects of the international financial crisis of 2007-2008, will stall growth this year.
Effect of rate rise
Last month, the US Federal Reserve (the country’s central bank) increased its federal funds rate, the first time it’s been raised in nine years. The rate serves as a key benchmark for aspects of the American economy such as expansion, inflation and employment.
Lagarde said that rising US interest rates could further hinder global economic expansion. She expressed concern that the Fed’s decision to hike the interest rate would raise financing costs for some borrowers. This, Lagarde suggested, could force firms in some emerging economies to default on their payments, which in turn could effect banks, especially if US interest rates continue to rise and the dollar strengthens. The Fund suggested in July 2015 that a stronger dollar could damage global financial stability.
Continuing, Lagarde wrote: “Most highly developed economies except the USA and possibly Britain will continue to need loose monetary policy but all countries in this category should comprehensively factor spill over effects into their decision-making.”
Htet Tayza’s commentary
It’s important to note that the IMF does expect the global economy to expand in 2016. Meanwhile the Organisation for Economic Development (OECD), an international economic organisation of 34 nations, holds similar expectations. They predicted that the world’s economy will grow by 3.3% this year, up from 2.9% in 2015.
Therefore there are a number of factors that could impede global economic expansion in 2016. But if major nations such as the US and UK adopt Lagarde’s advice and loosen monetary policy and factor spill-over effects into financial decision making, they could ensure that worldwide economic expansion remains relatively robust throughout the next 12 months.