IMF chief says global economy may be entering a soft patch

04 June 2013 21:36  [Source: ICIS news]

WASHINGTON (ICIS)--The global economy may be entering a “soft patch” with slowing growth in China along with full-year recession and rising unemployment in the European Union, the International Monetary Fund (IMF) leader said on Tuesday.

In a speech to a Washington, DC, think tank, IMF managing director Christine Lagarde said that the “fragile and uneven recovery” she described just a month ago for the global economy is now threatened by “more sombre trends”.

“Recent data, for example, suggest some slowdown in growth,” she told economists at the Brookings Institution. “At the same time, the downside risks to growth remain as prominent as ever.”

“In the past few months, we see signs of slowing momentum in some emerging markets,” she said. “In China, recent activity has been weak and growth remains too reliant on credit, property investment and infrastructure.”

In addition, she said, “Investment prospects also look less bright in key markets such as Brazil, India, Russia and South Africa.”

Lagarde said that the eurozone economy “is still stuck in low gear”.

She said that business activity in the euro area “has continued to shrink in the beginning of this year, and we expect negative growth - of -0.3% - for the year as a whole”.

“Overall, the region is operating at zero speed,” Lagarde said.

The EU situation is not likely to improve anytime soon, she added.

“Going forward, the indicators are not encouraging,” she said. “Lending to firms is rising only gradually in countries like Germany, and not at all in countries like Italy or Spain.”

She noted that European unemployment rates are still rising, and that weakness, combined with lingering uncertainty over the eurozone growth outlook, “is draining momentum even from countries like Germany and France”.

Germany and France have been the principal economic engines in Europe over the last several years.

Lagarde said that the US economy has made a lot of progress in a short term, largely because of “a steady increase in private demand, driven by a recovery in the housing sector and in the automobile industry and easing financial conditions”.

She said that the IMF is forecasting US gross domestic product (GDP) for full-year 2013 will be “almost 2%”, which is below US normal trend GDP growth of 3% to 3.5% annually.

She called for continuing stimulative policies by governments and “a real banking union to strengthen the foundations of the [eurozone] monetary union”.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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