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Global growth still moderate, says IMF
Sep '15
Global growth remains moderate, reflecting a further slowdown in emerging economies and a weak recovery in advanced economies, according to an IMF note on Global Prospects and Policy Challenges.

According to the executive summary prepared of the note prepared ahead of the on-going G-20 Finance Ministers and Central Bank Governors Meeting in Ankara, Turkey, in an environment of rising financial market volatility, declining commodity prices, weaker capital inflows, and depreciating emerging market currencies, downside risks to the outlook have risen, particularly for emerging markets and developing economies.

Global growth in the first half of 2015 was lower than in the second half of 2014, reflecting a further slowdown in emerging economies and a weaker recovery in advanced economies. In advanced economies, weaker exports, partly reflecting temporary factors, and a slowdown in domestic demand were key factors. Productivity growth has been persistently weak.

In emerging economies, the slowdown reflects a continuation of the adjustment after the investment and credit boom post-crisis, together with the fallout from declining commodity prices, geopolitical tensions, and conflict in a number of countries. In advanced economies, economic activity is projected to pick up modestly in the second half of the year and into 2016. In emerging economies growth this year is projected to slow again relative to 2014; some rebound is projected next year, as conditions in distressed economies, while remaining difficult, are projected to improve.

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. Emerging market currencies have generally depreciated, reflecting weakening commodity prices, concerns about the growth transition in China, an increase in risk aversion, and expectations of a lift-off in policy rates in the US.

In contrast, financial conditions in advanced economies continue to be easy. On the back of weak demand, safe real interest rates remain low, despite some widening of spreads, even as the policy rate lift-off approaches in the US.

Risks are tilted to the downside, and a simultaneous realization of some of these risks would imply a much weaker outlook. Near-term downside risks for emerging economies have increased, given the combination of China's growth transition, lower commodity prices, potential adverse corporate balance sheet and funding challenges related to a dollar appreciation, and capital flow reversals and disruptive asset price shifts.

According to the summary, strong mutual policy action is needed to raise growth and mitigate risks. (SH)

Fibre2Fashion News Desk – India

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