IMF Chief Warns That Global Growth May Disappoint in 2016

As most people look forward with hope to the potential of a new year, the International Monetary Fund’s (IMF) Managing Director, Christine Lagarde, warned of a disappointing global economic outlook. 

As most people look forward with hope to the potential of a new year, the International Monetary Fund’s (IMF) Managing Director, Christine Lagarde, warned of a disappointing global economic outlook. 

Writing a guest article for German newspaper Handelsblatt, Lagarde said Wednesday that economic growth would disappoint in 2016, with the medium-term outlook deteriorating. Unfortunately, rising interest rates in the United States and an economic slowdown in China will both contribute to slower growth on a global stage next year, thanks to uncertainty and a higher chance of volatility.  

Moreover, according to Fortune, global trade has slowed this year, and a number of raw material prices have dropped, creating issues for economies that rely heavily on these commodities. Many nations also still have problems with their financial sectors, and weaknesses have become particularly apparent in emerging markets. 

As a result, according to Lagarde, global growth will be “disappointing and uneven in 2016.” Mid-term prospects also appear to be on the decline thanks to low productivity, aging populations, and the lingering results of the global financial crisis.

Lagarde points the finger squarely at the United States and China for much of this impending economic stagnation. While the effects will prove particularly acute for wealthier nations, Lagarde fears that less well-developed economies may struggle to absorb shocks caused by America’s higher interest rates.

In particular, companies operating in emerging markets with debts tallied in dollars may struggle when growth slows and local currencies lose some of their value compared to the U.S. dollar. That, in turn, could lead to foreign companies defaulting on their debts to American and European lenders, potentially “infecting” the banks and their corresponding states. 

Fortunately, Lagarde indicated that the IMF believes that the risks associated with these ups and downs may be mitigated by increasing or maintaining customer demand, maintaining individual financial stability, and renegotiating debt structures to better suit the changing situation.

Lagarde added, “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 spillover effects into their decision-making.” 

She went on to note that emerging markets should improve by monitoring the risks taken by companies operating in their borders as related to foreign exchange rates. Furthermore, commodity-driven economies should adopt policies to adjust pricing to compensate for lower demands, while other nations should focus on adopting growth-friendly budget measures that use tax and energy price reforms while modifying bad national spending habits.