IMF chief warns of slower growth after China shockwaves

The head of the International Monetary Fund Christine Lagarde thinks that the shockwaves from China's economic problems will cause other countries in the region to lose momentum.

The International Monetary Fund (IMF) boss warned that global growth will be weaker than forecasts have predicted as China’s manufacturing shrinks at its fastest rate since 2012.

Economic outlook

Lagarde issued the cautious outlook when speaking to an audience at the University of Indonesia in Jakarta.

“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,” she said.

“Asia as a region is still expected to lead global growth. But even here, the pace is turning out slower than expected – with the risk that it may slow even further given the recent spike in global risk aversion and financial market volatility,” explained Lagarde.

Forecast cuts

The IMF recently cut its economic forecasts, expecting that global growth would be around 3.3% in 2015. It was a reduction from the previous expectation of 3.5% forecast made by the IMF in April 2014 and another of 3.4% in July 2014.

China has been the main factor in global growth in recent years, and the turmoil caused by its currency devaluation, stock market falls and export losses continues to reverberate around the world. The UK economy has also been affected, as August saw the FTSE 100 suffer its worst month for three years.

However, Lagarde looked to calm fears that the Chinese authorities were running out of ideas to solve their crisis.

“As the Chinese economy is adjusting to a new growth model, growth is slowing – but not sharply, and not unexpectedly,” she said.