Posts Tagged ‘International Monetary Fund’

Malaysia’s central bank governor steps down after defaults by 1MDB

April 27, 2016

Malaysia’s first female central bank governor Zeti Aktar Aziz will step down on Saturday but as the 1MDB saga rolls on, her legacy is a mixed one, according to observers.

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KUALA LUMPUR: Malaysia’s first woman central bank governor Zeti Aktar Aziz officially steps down on Saturday (Apr 30) after having helmed Bank Negara for 16 years.

While she is hailed as one of the most influential central bank governors in the region, the verdict is still out whether she has done enough to rein in the debt ridden state investment fund 1Malaysia Development Berhad (1MDB). Her departure will come at a sensitive time with the recent defaults by 1MDB weighing on the currency and stock markets.

Dr Zeti, who holds a PhD in monetary and international economics from the University of Pennsylvania, carved her place in history when she she became the first woman to head Malaysia’s central bank in 2000.

Under her watch, economists say the country’s monetary policy was kept remarkably stable despite Malaysia’s exit from a fixed exchange rate and capital controls in 2003.

She was credited with strengthening the independence and credibility of the central bank. In 2009, Global Finance magazine named her as one of the world’s best central bank chiefs.

In 2012, Dr Zeti was picked by Bloomberg as among the top four nominees to head the International Monetary Fund. In 2013, she was accorded “Grade A” among heads of central banks for the tenth time by the Global Finance magazine.

“Dr Zeti is probably the most influential central banker we’ve had for a long time; she’s left a mark, she’s set certain standards which her successor will need to emulate,” said economist K S Jomo. “But beyond that, it is important for a central bank to look at fiduciary duties and other responsibilities expected of a central bank.”

But for some – Dr Zeti’s legacy will be judged by the 1MDB saga. She recommended criminal action against the fund and ordered the repatriation of US$1.8 billion, but then the attorney general cleared 1MDB of any wrongdoing and ordered the case closed. Dr Zeti said she has since invoked administrative punitive action against 1MDB, which may see it heavily fined.

But critics say it is too little, too late. “You think by making some statements here and there, or by pointing to some references to your good work in the past, people will forget what you’ve done?” said former Law Minister Zaid Ibrahim. “We need not have waited for the Wall Street Journal to expose 1MDB; why do we need foreigners to expose these things? What happened to our institutions?”

But, others disagree. “We are not in position to judge how much central bank knew, how much was actually uncovered, and what exactly should have been done,” said Prof Jomo. “It would be premature to make unfair criticism.”

So now attention shifts to her successor. While, the guessing game continues on who will take the mantle. With the 1MDB scandal still dominating headlines across the world, it is unlikely to be an easy handover.

IMF chief Christine Lagarde urges transparency to stop corporate tax avoidance

April 17, 2016

AFP

© AFP | IMF Managing Director Christine Lagarde, pictured on April 17, 2016, said developing countries are the main victims of legal financial techniques that deprive them of vital funds

WASHINGTON (AFP) – International Monetary Fund chief Christine Lagarde called Sunday for financial “transparency” among multinational companies to counter tax avoidance schemes in which less-developed countries suffer the most.

Her comments came amid the continuing fallout from the “Panama Papers” leak, which has brought to light techniques used by some large companies to reduce taxes by reporting profits in low-tax jurisdictions.

“It should be a major concern,” Lagarde said during a panel at the spring meetings of the IMF and the World Bank.

“What could be done to address these issues is transparency” — on loopholes, business activities, profit allocation and locations of subsidiaries, she said.

Lagarde noted there was momentum to change existing financial practices and systems, “but we need to sustain that momentum and it needs to be followed up by delivery.”

“We’re certainly keen at the IMF to propose some changes in that respect together with other international institutions,” she said.

According to a recent report from anti-poverty group Oxfam, corporate giants such as Apple and General Electric stashed nearly $1.4 trillion in offshore tax havens between 2008 and 2014.

Lagarde said developing countries are the main victims of these legal financial techniques that deprive them of vital funds.

“They’re the ones who rely the most on corporate income tax … and they’re the ones who lose out to the great creativity and inventiveness of the multinationals,” she said.

Chinese Finance Minister Lou Jiwei Takes Aim at Donald Trump’s Trade Policies — “This Could Only Help Mr. Trump”

April 17, 2016

Chinese finance minister: Trump Is an ‘irrational type’

China's finance minister Lou Jiwei at a G20 new conference in Washington, D.C., on Friday.
China’s finance minister Lou Jiwei at a G20 new conference in Washington, D.C., on Friday. PHOTO: EUROPEAN PRESSPHOTO AGENCY
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By  BOB DAVIS and LINGLING WEI
The Wall Street Journal
Updated April 17, 2016 8:00 a.m. ET
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WASHINGTON—Chinese Finance Minister Lou Jiwei called GOP presidential front-runner Donald Trump an “irrational type” and said the U.S. “wouldn’t be entitled to world leadership” if it followed Mr. Trump’s proposed trade policies toward China.

Mr. Trump has advocated imposing up to 45% tariffs on China as a way to force it to change its trade policies. Mr. Lou, known in China for his bluff outspokenness, said in an exclusive interview with The Wall Street Journal that such a tariff would violate World Trade Organization rules. Under those conditions, he said, the U.S. wouldn’t be entitled to its position as the world’s major power.

Mr. Lou is correct on the trade rules, according to Jeffrey Schott, a trade economist at the Peterson Institute for International Economics, a think tank backing free trade.

“Almost any across-the-board tariff increase would violate U.S. obligations under the WTO,” he said.

A representative for Donald Trump wasn’t immediately available to comment.

Asked about the tough talk on China in the presidential campaign, from both Democrats and Republicans, Mr. Lou said Americans needed to recognize the U.S. and China “are mutually dependent on each other” and both have a lot to lose in any economic confrontation.

“Our economic cycles are intertwined,” he said. “We have more in common than sets us apart.”

Mr. Lou also said he understood that rhetoric in a presidential campaign gets heated and many times doesn’t reflect the policies an incoming administration would adopt. With a new administration, he said, “U.S.-China ties should be more or less as they are now.”

Mr. Lou is the most senior Chinese official to comment on Mr. Trump. In March, Chinese Premier Li Keqiang was asked about the U.S. election—though not Mr. Trump specifically—and said it was “lively and caught the eyes of many.” In daily briefings, the foreign ministry declines to answer questions about the New York businessman or other U.S. presidential candidates.

China this year leads the Group of 20, whose finance ministers met on Friday on the sidelines of the International Monetary Fund’s spring meetings held throughout the weekend in Washington. Many participants welcomed signs of stabilization in the Chinese economy. But they also raised concerns that China’s authorities haven’t been carrying out economic overhauls as fast as necessary, potentially leading to other problems down the road.

Mr. Lou, who co-chaired the G-20 meeting of finance ministers, urged patience from the rest of the world.

“In China, there are big distortions in our economic system,” he said.

The Chinese finance minister urged the U.S. to increase its public and private investment as a way to improve the U.S. economy and make a contribution to global economic growth. He argued China had done its part in 2009 during the global financial crisis by putting in place a large stimulus program. That spending, he argued, helped buck up global growth.

“China’s efforts helped the world,” he said. “Now the U.S. needs to do more to help the world” through increased investment. He said he has been lobbying the U.S. to take such action “but we haven’t seen much progress.”

He urged the U.S. to move more briskly in deregulation—the same advice the U.S. has been giving China for years—and cited burdensome rules holding back construction projects in the U.S.

U.S. Treasury Secretary Jack Lew said the U.S. government has long played an important role in bolstering the domestic and global economy. “When the government needed to step in during the [global financial] crisis, we stepped in,” he told reporters Friday. “When it was time to step out, we stepped out. Some could argue we should have stayed in a little bit longer, it should have been a little bit bigger or a little bit smaller. But basically we used all of the tools.”

Many in China argue that its stimulus program went on for too long and produced an avalanche of lending by state banks, which inflated a bubble in China’s real-estate market and led to vast overcapacity in its industrial sector. Now the real estate bubble has burst and the lending has saddled China with poorly performing companies that are having a tough time paying down their debts. Largely as a result, China’s economy has slowed to below 7% annual growth in GDP, about half the 14.2% GDP growth it recorded in 2007.

China has just begun to deleverage, Mr. Lou said, and can’t produce the demand for commodities that many emerging markets had relied upon. That has depressed commodity prices and reduced growth prospects for mineral and oil producers in Asia, Latin America and Africa.

The G-20 issued a joint statement urging greater use of fiscal measures, alongside monetary policy and underlying economic overhauls, to boost world growth. The countries also forswore protectionism and the use of foreign-exchange policy “for competitive purposes.” The G-20 has urged such policies for years. The leaders of the G-20 will meet in September in Hangzhou, China.

Mr. Lou pointed to experiments in land reform as examples that China is making progress. In China, land is owned by the state, so farmers can’t sell the properties they have farmed. That has kept many tethered to the land and produced an inefficient agricultural system of tiny plots of land.

In the experiment, he said, farmers would be encouraged to transfer and lease out the land or use it for equity financing.

Mr. Lou has also been pushing local governments to clean up their debt. “I’m a man of principle,” he said, “but I’m also pragmatic.”

Write to Bob Davis at bob.davis@wsj.com and Lingling Wei at lingling.wei@wsj.com

http://www.wsj.com/articles/chinese-finance-ministerlou-jiwei-takes-aim-at-donald-trumps-trade-policies-1460892988

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Chinese Finance Minister Lou Jiwei slams Donald Trump’s trade policies, calls him ‘irrational’

Chinese Finance Minister Lou Jiwei slams Donald Trump’s trade policies, calls him ‘irrational’

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WASHINGTON – Outspoken Chinese Finance Minister Lou Jiwei has become the most senior Chinese leader to directly comment on Donald Trump, calling the US presidential front runner “irrational” and saying the US “wouldn’t be entitled to world leadership” if it followed Mr Trump’s proposed hardline trade policies towards China.

Mr Lou said in an exclusive interview with the Wall Street Journal published on Sunday (April 17) that Mr Trump’s idea of imposing up to 45-per-cent tariffs on China would violate World Trade Organisation (WTO) rules.

“Trump is an irrational type. If he were to do this, that would be in violation of the rules set by the World Trade Organisation,” said Mr Lou when asked to comment on Mr Trump’s protectionist policies.

“If the US were to do what he proposed, then the US would not be entitled to its position as the world’s major power,” added Mr Lou.

“The US needs to recognise that the US and China are mutually dependent on each other. Our economic cycles are intertwined. We have more in common than sets us apart.”

But Mr Lou signalled that he thought China-US ties would remain on even keel under a new US president.

“Don’t take the rhetoric in a presidential campaign too seriously…With a new administration, US-China ties should be more or less as they are now,” he told WSJ.

In March, Chinese Premier Li Keqiang was asked about the US election – though not Mr Trump specifically – and said it was “lively and caught the eyes of many”.

In daily briefings, China’s foreign ministry declines to answer questions about the New York businessman or other US presidential candidates.

China this year leads the Group of 20, whose finance ministers met on Friday on the sidelines of the International Monetary Fund’s spring meetings held throughout the weekend in Washington. The G-20 meeting was co-chaired by Mr Lou.

Many participants said Beijing’s efforts to stabilise its economy have temporarily eased global fears tied to the world’s No. 2 economy.

“There was not the same level of anxiety,” said IMF Managing Director Christine Lagarde.

Mr Lou urged patience from the rest of the world. “In China, there are big distortions in our economic system,” he said in the WSJ interview.

He also urged the US to increase its public and private investment as a way to improve the US economy and make a contribution to global economic growth. He argued China had done its part in 2009 during the global financial crisis by putting in place a large stimulus programme which in turn spurred global growth.

“China’s efforts helped the world,” he said. “Now the US needs to do more to help the world” through increased investment.

http://www.straitstimes.com/world/united-states/chinese-finance-minister-lou-jiwei-slams-donald-trumps-trade-policies-calls-him

German Finance Minister urges Greece to ‘do more’

April 17, 2016

Finance ministers of France and Germany have voiced hope that Athens would soon reach a new bailout deal with its international lenders. Both also urged the IMF to continue its involvement with the debt issue.

Creditors are hoping to reach an agreement with Greece “relatively quickly,” German Finance Minister Wolfgang Schäuble said at the sidelines of an International Monetary Fund (IMF) meeting in Washington on Saturday.

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Greece needs to cut another 5.4 billion euros ($6.1 billion) in spending in order to comply with the creditors’ terms and conditions and eventually unlock more of their funds. The government is reportedly planning more pension cuts and further tax hikes.

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Athens has announced it would pursue the required regulations before the end of the month.

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Earlier this week IMF officials stated that Greece’s plans might not be enough to meet the stated goals. To date, the IMF has refused to help fund the latest bailout plan, demanding deeper reforms and an EU agreement to ease Greece’s debt burden.

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‘Edge of the cliff’

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Speaking in Washington on Saturday, Germany’s Schäuble said that Athens and its lenders could reach a deal after EU finance ministers meet in Amsterdam next weekend. At the same time, the minister urged the indebted state to continue implementing reforms.

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“Everybody knows that the maneuvering space for the Greek government is limited,” he said. “But all say at the same time Greece must do more and can do more.”

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His French counterpart Michel Sapin also said that the Amsterdam meeting could bring about a breakthrough.

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“It is crucial to resolve the Greek issue now or we will always be on the edge of a cliff,” he told reporters.

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Berlin and Paris want IMF involved

Sapin urged IMF to help fund the latest debt relief plan for Greece.

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“If the IMF is no longer on board it would weigh negatively on resolving the problem,” he said.

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Schäuble also called on IMF to stay involved, saying that the Washington-based lender brought essential technical expertise to the table.

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Greece signed up to a bailout worth up to 86 billion euros last year, marking its third international financial lifeline since 2010.
dj/jlw (dpa, AFP)

http://www.dw.com/en/german-finance-minister-urges-greece-to-do-more/a-19193708

Why China Still Makes the Financial World Anxious

April 14, 2016

The recent calm in China’s markets is unlikely to last

A Chinese national flag in front of a poster explaining the design of the new 100 yuan bank note at a branch of a commercial bank in Beijing in January.
A Chinese national flag in front of a poster explaining the design of the new 100 yuan bank note at a branch of a commercial bank in Beijing in January. PHOTO: REUTERS
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April 13, 2016 11:31 a.m. ET

It has been a calm couple of months in China’s financial markets. That’s unlikely to last, and the turmoil is more likely than ever to spill over into the world’s still fragile financial system.

Until last summer, most of the world didn’t care much about China’s markets or banks. What mattered a lot was how much its factories produced and how much copper or iron ore it imported.

That changed in August when Beijing botched a currency devaluation. That was followed in January by a stock-market selloff that rippled across the globe.

“We are likely to see much more of that,” said Gaston Gelos, who oversaw the International Monetary Fund’s Global Financial Stability Analysis Report, which came out last week. The IMF expects China’s connections to the global financial system to grow substantially in the coming years.

What is most worrisome is investors’ short memories of the havoc China played on the world’s markets. The idea that China is still an engine of growth, and that there are big profits to be made there, is dangerous for investors.

During the recent calm in Chinese markets, the country expanded its influence on the global financial system via deal-making and the opening of its huge domestic bond market. Investors have also grown interested again in China’s wild stock market. Meanwhile, China’s crucial economic-reform program has lagged behind, making it increasingly likely the country will struggle with more financial upheaval, in particular with its currency.

On the deals front, Chinese companies have already committed to spending $96.7 billion this year on overseas acquisitions, just behind last year’s total of $106.9 billion. For a while, the biggest deal was an ill-fated attempt by a Chinese provincial car insurer turned acquisition machine to buy Starwood Hotels & Resorts Worldwide Inc.
There’s not much risk to a Chinese company buying a hotel chain. But Anbang Insurance Group Co. has snapped up insurers, which can cause more than a bad night’s sleep if things go wrong. One stumbling block on the Starwood deal was lack of transparency about Anbang’s finances, and rating firms have expressed the same concerns.

Anbang last week picked up a Korean insurer and in November agreed to buy Fidelity & Guaranty Life, one of the biggest sellers of fixed indexed annuities in the U.S., for $1.57 billion.

Anbang replaced Fosun Group as China’s overseas buyer of the moment. Fosun stepped back from deal making this year after a $10 billion, two-year buying spree, in part because its chairman disappeared briefly for questioning by Chinese authorities. His disappearance knocked down the prices of Fosun’s bonds and stock, and Fosun terminated two foreign deals soon after.
It isn’t hard to imagine investors losing confidence in a financial firm whose executives have disappeared into government custody.

For years, China’s domestic stock, bond and currency markets have been largely closed to foreign investors, providing a global firewall that protected the rest of the world from China’s ups and downs.

That too is eroding. China is opening its $6.7 trillion bond market—the world’s third-largest—as it tries to spread the risk from its credit binge.

While credit ratings and bankruptcy protection are not to be relied on in China, many yield-seeking Western investors say they’ll buy when given the chance. There will likely be plenty more to buy: The Chinese bond market has grown 22% a year for the past five years, according to the IMF.

The opening of the bond market comes after China has allowed foreigners to buy its stocks and trade its currency, though always on Beijing’s terms. Both of those markets were opened as part of China’s efforts to liberalize its capital markets. China is opening its bond market for a different reason, to get foreigners to help in dealing with its huge debt load.

That’s the problem with China getting more deeply involved in the global financial system. In China, stability and political goals have long overshadowed financial realities. China wants to spread the risk of its markets to the world. But its markets aren’t truly markets as we understand them—they are but another political tool to be used by the central government.

Even without the markets, the global financial system is heavily exposed to China via the banks. Bank lending into China grew five times from 2010 to 2015 to $1 trillion, according to the IMF.

With that much exposure, turmoil in the Chinese economy could cause big losses at the world’s banks. Big banks have a unique talent for spreading contagion.

Then there’s the yuan. When the Chinese currency was appreciating, investors piled into yuan-denominated bonds and businesses increasingly used the yuan for trade. That ended when the yuan tumbled.

China knows it needs to keep its economy growing, but so far the only way that’s worked is by borrowing more. That poses risks to the bond market, to companies that have invested abroad and to banks that have lent in China.

One solution to boost growth would be to devalue the yuan. If Beijing decides another devaluation is China’s best hope, expect a rerun of last summer.

Write to Ken Brown at ken.brown@wsj.com

http://www.wsj.com/articles/why-china-still-makes-the-financial-world-anxious-1460561516

Conservative donors prepare to sink £5million into Brexit campaign amid anger about pro-EU leaflet

April 13, 2016

By 

Major Tory donors are preparing to fund a grassroots campaign to leave the European Union following David Cameron’s decision to spend millions of pounds on a pro-EU leaflet, the Telegraph can disclose.

Members of the Midlands Industrial Council, a group of businessmen which have bankrolled the Conservative party for 20 years, are planning to donate between £4million and £5million to the anti-EU campaign over the next 10 weeks.

It will be seen as an attempt to redress the balance following the Government’s controversial decision to spend £9.3million of taxpayers’ money in order to send a pro-EU leaflet to every home in Britain.

David Wall, the Council’s secretary, says his members are “incandescent with rage” over Mr Cameron’s decision to send the leaflet.

Their decision will come as a major blow to Mr Cameron ahead of the June 23 referendum and is a sign of the anger among many traditional Tory backers at the decision to publish the leaflet, which has been described as “propaganda” by critics.

It came as the International Monetary Fund (IMF) warned that a “Brexit” would cause “severe regional and global damage” and cause “major challenges” for Britain.

David Cameron faces a battle to win the EU referendum

David Cameron, pictured at Westminster Abbey on Tuesday. He faces a battle to win the EU referendum Credit: PA/PA

 

Both Mr Cameron and George Osborne, the Chancellor, seized on the comments by the IMF, which downgraded its growth forecasts for the UK because of the risk of a “Brexit” and added that leaving the EU would cause “major challenges” for the UK.

However, campaigners pointed out that the IMF had been “consistently wrong” in past forecasts and had been forced to apologise to Mr Osborne in 2013 for having predicted that his austerity measures would harm the UK economy.

“The IMF’s warnings about our exit from the EU are stark,” Mr Osborne said. “For the first time, we’re seeing the direct impact on our economy of the risks of leaving the EU.”

Members of the Midlands Industrial Council have, since Mr Cameron became Prime Minister in 2010, donated between £1million and £2million to the Tory party every year.

Ahead of last year’s general election, the Council’s members supported between 40 and 50 Conservative MPs’ seats, as well as the central party.

David Wall, the Council’s secretary for the past 20 years, joined Grassroots Out Movement’s board earlier this year.

In an interview with the Telegraph, Mr Wall said that five members of the Council, who are all Conservative party donors, have already put around £500,000 into the “Brexit” campaign.

Asked how much the Council might donate to the anti-EU campaign ahead of the vote on June 23, he said: “I would say there is a potential of £4million or £5million.”

The Electoral Commission must decide by tomorrow whether Grassroots Out Movement or the rival Vote Leave group is made the official designated “Brexit” campaign. The official EU

The two sides have been at loggerheads for months over the designation, which will give the winner the right to raise £7million during the 10 week campaign.

All other campaigns will have their spending capped at £700,000.

Vote Leave is seen as the favourite because it is backed by senior Tory politicians including Michael Gove, the Justice Secretary.

Grassroots Out merchandise

Grassroots Out merchandise Credit: PA/PA

Grassroots Out Movement comprises five parties – including Ukip, the Liberal Party and the new Communist Party of Great Britain – and 14 other organisations including Leave.EU, Labour Go, Conservative Grassroots and the Democracy Movement.

Ukip will be allowed to spend £4million because of its large vote share at the 2015 general election.

However, each of the other 18 groups making up Grassroots Out Movement can still spend up to £700,000, meaning the Midlands Industrial Council members can donate to the individual groups in order to vastly increase the money being funnelled into the “Brexit” campaign.

Mr Wall added: “I believe that significant sums will now to go Grassroots Movement – the umbrella organisation – or Grassroots Out, either one.”

Mr Wall said that most of the council’s 27 members – who he described as a group of mainly male “self-made people” – wanted Britons to vote to leave at the June 23 referendum.

Mr Cameron’s decision to send out the leaflet had “has hardened a lot of people’s attitudes in the last few days”, he said.

Mr Wall said: “This leaflet they are sending out –a number of my members are incandescent with fury about it. They see that as a blatant misuse of power.”

Any donations were “hypothetical” at this stage and “will be made by permissible donors themselves,” he said.

Mr Wall insisted that the donations to the out campaign did not undermine Mr Cameron’s leadership.

He said: “This is an issue of conscience. It isn’t that any of my members disrespect David Cameron in any way, shape or form. We do hold him in very high regard. But in this area we think he is wrong.”

In 2006, the Council agreed to publish “in the interests of transparency” a list of its supporters, which included Lord Bamford, the chairman of digger manufacturer JCB.

See more:

http://www.telegraph.co.uk/news/2016/04/12/conservative-donors-prepare-to-sink-5million-into-brexit-campaig/

 

IMF Cuts 2016 Global Economic Growth Outlook to 3.2%

April 12, 2016

Dimmer forecast comes as world’s finance officials prepare to meet

Pedestrians walk along the Orchard Road shopping district in Singapore on Monday. China’s slowdown and weak commodity prices are taking a deeper toll on emerging markets and hurting its trade partners.
Pedestrians walk along the Orchard Road shopping district in Singapore on Monday. China’s slowdown and weak commodity prices are taking a deeper toll on emerging markets and hurting its trade partners. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES
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By Ian Talley
The Wall Street Journal
Tuesday, April 12, 2016
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WASHINGTON—The world economy is increasingly at risk of stalling, the International Monetary Fund warned Tuesday as it once again cut its forecast for global growth prospects.

The IMF said it was forced to downgrade its growth forecast for this year to 3.2%, down by 0.2 percentage point from its projection issued in January. China’s slowdown and weak commodity prices are taking a deeper toll on emerging markets than expected and rich countries are still struggling to escape the legacies of the financial crisis, the fund said.

The downward revision is the fourth straight cut in a year, putting world economic growth just a hair over last year’s 3.1% and only marginally above the 3% rate the IMF has previously considered a technical recession globally.

“Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation,” IMF Chief Economist Maurice Obstfeld said as the fund launched its flagship report. The IMF is worried such stagnation could further stifle investment, smother wage growth, curb employment and push government debt to unsustainable levels in some countries.

“Does that culminate in some crisis and recession? It’s not clear at all that would be the case,” Mr. Obstfeld said. “But we definitely face the risk of going into doldrums that could be politically perilous,” he said.

The increasingly dour outlook sets the tone for the semiannual IMF and World Bank meetings this week in Washington, where financial leaders from around the globe will gather to take stock of the global economy.

Recessions in Russia and Brazil are proving to be deeper and longer than the IMF anticipated after political problems compounded the effects of a plunge in commodity prices. Dozens of other oil exporters—from Venezuela to Canada, Saudi Arabia to Nigeria—are also facing sharp slowdowns.

The IMF upgraded China’s growth forecast this year by 0.2 percentage point to 6.5% as the service sector compensated for a downturn in manufacturing. But the country’s deceleration continues to hit trade partners around the world. Jitters about the fate of the world’s second-largest economy have roiled global markets in the past year.

China’s slowdown, along with the commodity-price downswing and the U.S. Federal Reserve’s move to start raising interest rates, packed a triple-punch to most emerging and developing economies around the world. Investors pulled out their cash in droves, pushing down exchange rates and equity prices, and raising bond premiums. China’s troubles also slashed trade and investment in many of those countries and spurred broader concerns about growth prospects in advanced economies.

The IMF said Beijing’s plans to boost output and overhaul its economy aren’t sufficient to address long-term growth concerns.

“Our concern is that some of the stimulus is likely to take the form of higher credit growth, more support for sectors that are…declining and not that productive.” Mr. Obstfeld said. “And so we worry about the quality of growth more than the quantity of growth.”

Those comments give credence to investors who are skeptical that authorities will be able to manage a smooth transition away from the country’s credit-fueled growth model toward one based more on markets and consumption.

Europe and Japan, meanwhile, can’t seem to escape from low growth despite aggressive central-bank actions that have pushed rates into uncharted negative territory.

“Persistent slow growth has scarring effects that themselves reduce potential output and with it, consumption and investment,” the IMF said.

A strong dollar, dimmer global growth prospects and soft oil prices also sapped output in the world’s largest economy, the U.S. The IMF shaved 0.2 percentage point off its U.S. growth forecast for the year to 2.4%.

Although global markets have recently clawed back some of the losses recorded early this year, the IMF said investors shouldn’t be complacent about the myriad risks threatening to derail an increasingly frail global economy.

Greece’s long-festering debt problems, a mounting refugee crisis and the U.K.’s potential exit from the European Union risk wreaking havoc on the eurozone and beyond, the IMF said. A misstep by Beijing could spark global market turmoil. Renewed stress in emerging markets, especially given rising corporate debt problems, could create financial stress, sovereign debt concerns, further exchange-rate depreciations and greater capital flight. Weak oil prices could spell deeper troubles ahead for oil exporters.

Amid those threats, the IMF also cut its global forecast for next year by 0.1 percentage point to 3.5%. But even that limited acceleration is based on a host of assumptions, including a smooth Chinese economic rebalancing, a pickup in commodity exporters and emerging markets more broadly.

“The current diminished outlook and associated downside possibilities warrant an immediate response,” Mr. Obstfeld said. “There is no longer much room for error.”

For the IMF, that means more easy money from central banks, new government-funded infrastructure investment and economic overhauls to raise productivity, competitiveness and investor confidence.

Although central banks are pressing the easy-money accelerator, other financial leaders have so far failed to deliver on promises to boost economic growth through coordinated measures.

Still, the IMF said policy makers should draft contingency plans for a joint response to revive growth should the global economy stagnate further. In one downside scenario that assumed a steady decline in global growth, the IMF suggested budget outlays of 1.5% of GDP in rich countries and 1% of GDP in emerging markets should help jolt the world economy out of its malaise.

Write to Ian Talley at ian.talley@wsj.com

http://www.wsj.com/articles/imf-cuts-2016-global-economic-growth-outlook-to-3-2-1460466006

IMF warning on Brexit fires up referendum campaign

April 12, 2016

AFP

© Pool/AFP / by Alice Ritchie | British Prime Minister David Cameron seized on a report by the IMF warning that a so-called Brexit could inflict “severe regional and global damage”

LONDON (AFP) – The warning by the International Monetary Fund of the dangers of Britain leaving the EU lit a fire under the country’s “Brexit” debate Tuesday, just days before official referendum campaigning begins.

Prime Minister David Cameron seized on a report by the world body warning that a so-called Brexit could inflict “severe regional and global damage”, but his opponents condemned it as scaremongering.

In its World Economic Outlook, the Washington-based IMF downgraded its forecast for British economic growth by 0.3 percentage points to 1.9 percent for 2016, although it held its 2017 forecast at 2.2 percent.

“The planned June referendum on European Union membership has already created uncertainty for investors; a ‘Brexit’ could do severe regional and global damage by disrupting established trading relationships,” it said.

Campaigners for Britain to remain in the 28-nation EU in the June 23 referendum have warned that leaving would be a “leap in the dark”, and Cameron was quick to endorse the IMF’s warning.

“The IMF is right — leaving the EU would pose major risks for the UK economy. We are stronger, safer and better off in the European Union,” the British premier wrote on Twitter.

Finance minister George Osborne said the report represented “the clearest independent warning of the taste of bad things to come if Britain leaves the EU”.

“If the British economy is hit by the mere risk of leaving the EU, can you imagine the hit to people’s income and jobs if we did actually leave?” he said in a statement.

However, campaigners to leave the EU were just as quick to condemn the IMF, saying it had an “appalling record” on forecasting British economic growth.

Brian Monteith of the Leave.EU campaign group said the report was a “fantasy, based on false assumptions about imaginary trade wars”.

Vote Leave chief executive Matthew Elliot added: “The IMF has talked down the British economy in the past and now it is doing it again at the request of our own chancellor.

“It was wrong then and it is wrong now.”

He added: “The biggest risk to the UK’s economy and security is remaining in an unreformed EU which is institutionally incapable of dealing with the challenges it faces, such as the euro and migration crises.”

– ‘Heightened uncertainty’ –

The pound has slumped since the announcement of the referendum date in mid-February, losing five percent of its value against the euro and falling to a seven-year low against the dollar at the end of February.

Bank of England governor Mark Carney warned last month that leaving the EU would create the “biggest domestic risk” to Britain’s financial stability.

In its report, the IMF listed a Brexit as one of its seven main “downside risks” to the world economy.

“Negotiations on post-exit arrangements would likely be protracted, resulting in an extended period of heightened uncertainty that could weigh heavily on confidence and investment, all the while increasing financial market volatility,” the report said.

“A UK exit from Europe’s single market would also likely disrupt and reduce mutual trade and financial flows.”

The intervention comes just days before the official campaign period for the referendum begins on Friday, although the debate is already in full swing.

Opinion polls suggest the British public are deeply divided over whether to stay in the EU, and the campaign has also split Cameron’s cabinet, after five senior ministers came out in favour of Brexit.

by Alice Ritchie
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Related:
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Brexit threatens to cause ‘severe global damage’ warns IMF — “The world could slip into a permanent cycle of low growth.”

April 12, 2016

International Monetary Fund Managing Director, Christine Lagarde Getty Images

By 
The Telegraph

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A British exit from the EU risks causing “severe global damage” that would drag down UK growth for years to come, the International Monetary Fund has warned.

The stark message came as the IMF slashed its global growth forecasts and said the risk that the world could slip into a permanent cycle of low growth, low inflation and low interest rates was rising.

The Fund said a vote to leave the EU posed one of the biggest risks to the global recovery as Maurice Obstfeld, its chief economist, described Brexit as a “real possibility”.

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Trade agreements would be torn up if the UK broke away from the rest of the bloc, the IMF said.This would create an “extended period of heightened uncertainty” as “protracted” negotiations with Brussels on a new deal “weigh heavily” on confidence and investment.

Osborne: IMF cuts Britain's growth forecasts over Brexit fears 

“The planned June referendum on European Union membership has already created uncertainty for investors; a ‘Brexit’ could do severe regional and global damage by disrupting established trading relationships,” Mr Obstfeld said in the IMF’s World Economic Outlook.
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.The UK economy is now expected to grow by 1.9pc this year. This represents the weakest annual growth since 2012 and is down from a forecast of 2.2pc just three months ago.
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Growth in 2017 is projected to rise to 2.2pc, unchanged from the Fund’s previous estimate. Lower energy prices and Britain’s “buoyant property market” would help to offset the Chancellor’s renewed austerity drive, it said.George Osborne described the scenario as a “taste of bad things to come if Britain leaves the EU”.

“While Britain remains one of the fastest growing advanced economies in the world, the IMF’s warnings about our exit from the EU are stark. For the first time, we’re seeing the direct impact on our economy of the risks of leaving the EU,” the Chancellor said.

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What are the alternatives if Britain leaves the EU? 

‘Fragile’ growth

The IMF described the global recovery as “fragile” as it warned that risks of recession and “secular stagnation” were rising across the world.

The global economy is expected to expand by 3.2pc in 2016 and 3.5pc in 2017, down from respective forecasts of 3.4pc and 3.6pc in January.

Japan is now forecast to contract in 2017 as a planned rise in the country’s sales tax cripples consumption.

 

The Fund said eurozone deflation risks had increased since the start of the year, despite the European Central Bank’s decision to expand its stimulus programme last month.China was the only large economy to receive a growth upgrade. Recent fiscal measures are expected to help Beijing achieve its ambitious growth target of between 6.5pc and 7pc this year.

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Mr Obstfeld said the “risk of a derailed recovery” was rising as he called for urgent action to stop the global economy from falling into a low growth trap.

Fiscal and monetary firepower would be needed to prevent the global malaise from becoming permanent, while structural reforms would help to cement the recovery.

“The current diminished outlook calls for an immediate, proactive response,” said Mr Obstfeld.

EU referendum: everything you need to know about polling day  

The IMF’s warning on Brexit follows an intervention last year by Christine Lagarde, the Fund’s managing director, who said questions surrounding the country’s future in the bloc would cost UK jobs and investment.

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The Fund is preparing to publish its latest healthcheck of the UK economy next month, where it will analyse the impact of a British departure from the bloc more closely.

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The OECD will also publish its assessment of Brexit ahead of the June 23 vote.

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IMF Warning: China’s Slower Economy is having a chilling effect on trade globally

April 12, 2016

By Reuters, AFP

China’s slowdown might not be quite as severe as first feared but its “momentous” shift from investment-led growth is still having a chilling effect on trade globally, the International Monetary Fund said on Tuesday.

The Washington-based organisation cited recent policy stimulus from Beijing as it nudged up forecasts for China’s growth, even as it trimmed the outlook for the world as a whole.

The fund now expects economic growth of 6.5 per cent this year and 6.2 per cent next, both up two-tenths of a percentage point from the last outlook in January.

That would still be a down from the 6.9 per cent growth posted for 2015, which itself was the poorest showing in a quarter of a century.

Official figures for gross domestic product (GDP) due later this week are expected to show annual growth eased to 6.7 per cent in the first quarter, though data from Beijing is often greeted with some scepticism by financial markets.

“China, now the world’s largest economy on a purchasing-power-parity basis, is navigating a momentous but complex transition towards more sustainable growth based on consumption and services,” the Fund said in the foreword to its 200-page global outlook report.

“Ultimately, that process will benefit both China and the world,” added the fund, whose spring meetings along with the World Bank will be held in Washington this week.

“Given China’s important role in global trade, however, bumps along the way could have substantial spillover effects.”

China accounts for a tenth of world trade and is among the top 10 trading partners for more than 100 countries. Crucially it was the biggest single spender on infrastructure, housing and the like, accounting for a quarter of world investment.

“Basically we’re all in this together, and what happens in one region will affect other regions,” IMF economic counsellor Maurice Obstfeld said in a recorded statement, adding that policymakers should “act now”.

As that investment boom cooled, it took a toll on other countries’ exports. The IMF estimated every 1 percentage point of investment-driven drop in China’s GDP cut growth for the entire Group of Twenty by 0.25 percentage points.

“Even countries that have few direct trade linkages with China are being affected through the Chinese slowdown’s impact on prices of commodities and manufactured goods, and on global confidence and risk sentiment,” the fund said.

The IMF noted that “limited progress on key reforms” had fuelled concerns, “triggering turbulence in Chinese and global financial markets”. It added that policy actions to quell market anxieties “have, at times, been ineffective and poorly communicated”.

 
 The weakness of corporate balance sheets and a large number of non-performing loans posed “risks to financial stability” in China, it said.

It offered a long list of suggestions for reform, ranging from strengthening market forces in China, to widening the social safety net and reining in state-run enterprises.

“A well-managed rebalancing of China’s growth model would ultimately lift global growth and reduce tail risks,” the fund concluded.

Reuters, Agence France-Presse

http://www.scmp.com/news/china/economy/article/1935604/imf-raises-china-outlook-warns-shift-growth-model-having-chilling


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