IMF cuts global growth outlook, calls for accommodative monetary policy

Ahead of a meeting of economic policy makers from the Group of 20 in the Turkish capital of Ankara this weekend, the IMF has warned of downside risks to global growth outlook, particularly for emerging markets and developing economies.

Financial markets have so far signaled chaos as uncertainty over China’s growth transition continues, triggering fears that saw investors pull capital from the Asian region.

“Global growth remains moderate, reflecting a further slowdown in emerging economies and a weak recovery in advanced economies,” said an IMF note prepared for the G20 meet from 4-5 September.

Finance Ministers and central bank governors from the Group of Twenty will discuss risks to recovery after global markets were rattled in recent weeks by concerns about slowing growth in China, the world’s second biggest economy.

Global stock indexes rose on Wednesday, helped by reports of brokerage measures in China to invigorate the country’s battered markets, while oil bounced from earlier losses to end nearly 2 per cent higher.

“Advanced economies should maintain supportive policies. In most advanced economies substantial output gaps and below-target inflation suggest that the monetary stance must stay accommodative. Managing high public debt in a low-growth and low-inflation environment remains a key challenge,” said the IMF.

“Financial conditions for emerging economies have tightened. In an environment of rising financial market volatility, dollar bond spreads and long-term local currency bond yields have increased relative to the spring, stock prices have weakened, and capital inflows have declined,” it added.

Foreign institutional investors (FII) sold a net 168.77 billion rupees ($2.55 billion) in Indian shares in August. Indian stocks slumped to a one-year low on Tuesday after data showed the country’s economy grew less than estimated in the April-June quarter.

An economic slowdown and lagging industrial production has affected China’s appetite for everything from iron ore to fossil fuels.

Global economic growth will likely be weaker in 2015 than the 3.3 per cent estimate the IMF made just two months ago, IMF Chief Christine Lagarde said this week.

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