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Emerging economies must be vigilant over China slowdown: IMF

Christine Lagarde

Jakarta: The International Monetary Fund managing director Christine Lagarde today warned that greater resilience would be needed from the world’s emerging economies to handle China’s slowdown, warning the road ahead could be “somewhat bumpy”.

The IMF chief also cautioned that global growth this year would be “likely weaker” than previously anticipated, less than two months after the IMF cut its global forecast for 2015 to 3.3 per cent.

Emerging markets from Indonesia to Brazil have been bruised by the slowdown in the world’s second largest economy.

A slump in Chinese demand for commodities — exports that many emerging economies rely on heavily — has hammered these up-and-coming economies and their currencies, while a recent rout on Chinese stock markets and the shock devaluation of the yuan has only added to their woes.

The IMF still expects Asia to lead global growth, but Lagarde admitted the pace was slower than expected and could further lag, highlighting the need for “ever greater resilience”.

Speaking in Indonesia, where China’s slowdown has contributed heavily to poor economic growth, Lagarde said many emerging economies risked being caught “on the wrong side” of this recent financial market volatility and needed to remain vigilant.

Aside from China’s slowdown, emerging economies faced weaker capital inflows, higher interest rates and financial upheaval if the US Federal Reserve lifts interest rates this year, the IMF chief told an audience at the University of Indonesia

Lagarde said growth in China wasn’t slowing sharply and had been expected, but conceded the country’s transition to a more market-based economy was “complex and could well be somewhat bumpy”.

“Other emerging economies, including Indonesia, need to be vigilant to handle potential spillovers from China’s slowdown and tightening of global financial conditions,” she added.

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