China’s slowdown, volatile financial markets and tumbling raw-materials prices have raised the risks to economic growth around the world, the global Monetary Fund reported Wednesday.
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It urged wealthy countries to continue easy-money policies and “growth friendly” tax and spending programs.
The IMF managing director, who was attending a conference on the future of financing for development, said global institutions, such as China’s Asia Infrastructure Investment Bank (AIIB), the Asian Development Bank and the World Bank, should work together to meet the region’s large infrastructure financing needs.
The troubles in China have sent the prices of commodities such as oil and copper sliding.
However, the fund still expects the global economy to expand by 3.3% this year, slightly lower than 3.4% in 2014.
For instance, the plan to set up a 60-billion-yuan fund ($9.4 billion) to support small-and medium-sized enterprises, which the Chinese government announced on Tuesday, is an emergency package, but it is one that will serve the long-term goal of promoting entrepreneurship and innovation as a new source of the country’s economic growth. The Chinese stock market has been falling since mid-June, and on August. 11 Chinese authorities unexpectedly devalued China’s currency, the yuan.
Many believed the move was an attempt to make Chinese exports more competitive.
In an interview with CNBC Wednesday, U.S. Treasury Secretary Jacob Lew warned China against manipulating its currency to give its exporters an unfair advantage.
The lender said the decision of Federal Reserve should remain data-dependent and, with little evidence of meaningful wage and price pressures, monetary policy normalization is expected to be gradual.
But 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. “Recent revisions in the US national accounts suggest that productivity growth during 2012-14 was lower than previously thought”. She argued that the risk of raising rates prematurely – and damaging the U.S. and global economies – outweighed the risk of waiting too long and allowing inflation to creep up.
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It is important for the G20’s central bankers and finance ministers to recognize that it will take time for China’s reforms to tackle the long-term structural problems in the Chinese economy.
