Global economic growth is set to moderate and will likely be weaker-than-expected earlier due to sluggish recovery in advanced economies and a further slowdown in emerging economies, International Monetary Fund Managing Director Christine Lagarde said Tuesday.
"Overall, we expect global growth to remain moderate and likely weaker than we anticipated last July. This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economies, especially in Latin America," Lagarde said in a speech at a university in Indonesia.
Further, Lagarde said Asia as a region is still expected to lead the global growth, but the pace is turning out slower than expected. She also warned of the risk that Asian growth may slow even further given the recent spike in global risk aversion and financial market volatility.
The Washington-based lender had lowered its global growth projection for this year to 3.3 percent in July. The projection for the next year was maintained at 3.8 percent.
Lagarde urged emerging economies, including Indonesia, "to be vigilant to handle potential spillovers from China's slowdown and tightening of global financial conditions".
Drawing attention to the strengthening recovery in advanced economies, especially in the United States, the IMF Chief said the scenario advanced the prospects of interest rate lift off. She cautioned of the risk for emerging economies in the form of weaker capital flows, higher interest rates, and financial volatility.
Turning to China, Lagarde said the slowdown there was not unexpected as the economy is adjusting to a new growth model. "Growth is slowing—but not sharply," she said.
"The transition to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy. That said, the authorities have the policy tools and financial buffers to manage this transition," Lagarde said.
She also urged Indonesian authorities to create better investment and trade opportunities to benefit from the economic growth in the region.
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