Stronger downside risks, including China’s change of growth model, lower commodity prices, and “asynchronous” monetary policy around the world prompted the International Monetary Fund (IMF) to lower its global growth outlook, IMF Managing Director Christine Lagarde told Yahoo Finance editor-in-chief Andy Serwer at the World Economic Forum in Davos, Switzerland.
The IMF pared its global growth forecast to 3.4% in 2016, a decline of 0.2% from the agency’s prior estimate in October. Lagarde warned of consequences as the world faces weaker growth.
“There will be fewer jobs created around the world, and there will be countries that will struggle, particularly those suffering from the double downside risks, which is the trade relationship with China slowing down a bit and lower commodity prices,” said Lagarde. “This will affect some of the emerging market economies and low income countries that are vastly commodity export dependent.”
Growth in China, the world’s second-largest economy, hit a quarter-century low, falling to 6.9% after the fourth quarter slowed to 6.8%. The IMF forecasts an expansion of 6.3% in 2016 and 6.0% in 2017, which represent sharp slowdowns from 2015.
Meanwhile, oil is trading near its lowest level in 12 years as concerns about a supply overhang weighs on prices. International benchmark Brent is down more than 25% so far in January and on track for its worst month since 2008.
Despite the rocky start to 2016 and the IMF’s recent downgrade, it’s not time for investors to panic, Lagarde said. “[3.4% growth] is not that bad; it would be better than last year,” she said. “We believe that the situation is manageable as long as [all policy makers] upgrade their monetary policies, cooperate with each other and not just look at their domestic situation, but how [their actions] will impact the rest of the world. There is volatility. There will be more than what we had in the immediate post crisis years, but it’s also a phenomenon that we have to get used to and anticipate.”
Lagarde’s call for cooperation from all monetary policy makers comes on the heels of the U.S. Federal Reserve’s decision to raise interest rates in December. Lagarde warned of hiking rates too quickly, saying that the IMF is “more supportive of a raise in early 2017 rather than late 2016” and that she hopes there will be “clear focus on inflation variations and movement” when the Fed decides on its next move.
Lagarde, whose current five-year term as head of the IMF is set to expire in July, is widely considered a sure bet for another term. The United Kingdom, France, and Germany have come out in support of Lagarde’s re-election.
