IMF Warns of Possible ‘Spiral’ of Waning Growth, Escalating Debt
Source: Bloomberg
By Andrew Mayeda
April 13, 2016 — 10:30 AM EDT
Global policy makers need to guard against a self-reinforcing “spiral” of weakening growth and rising debt that could require a coordinated response by the world’s major economies, according to the IMF’s top fiscal watchdog.
Most countries are on a higher debt path than they were a year ago, the International Monetary Fund said in its semi-annual Fiscal Monitor report released Wednesday. Fiscal deficits in 2015-2016 in emerging economies are projected to exceed levels during the global financial crisis, as countries struggle with low oil prices, cooling investor sentiment and intensifying geopolitical tensions.
The warning on countries’ debt reinforces the fund’s message in two other reports this week that the world risks slipping to stagnation without strong action by policy makers, who are gathering in Washington for spring meetings of the IMF and World Bank. If gross domestic product growth in advanced economies slides further, that would raise public and private debt levels as a proportion of output, said Vitor Gaspar, head of the IMF’s fiscal-affairs department.
“In such circumstances you can imagine that households, firms, and governments will be tempted to cut further expenditures,” Gaspar said in an interview. “That puts further downside pressure on nominal GDP growth, and that would be a spiral that one must avoid.”
Read more: http://www.bloomberg.com/news/articles/2016-04-13/imf-warns-of-possible-spiral-of-waning-growth-escalating-debt
World Faces 'lost Year' As Policymakers Sleepwalk Towards Fresh Crisis, Warns IMF
The world is sleepwalking into a fresh crisis as investors start to lose faith in policymakers’ ability to revive the global economy, according to the International Monetary Fund.
In its bluntest warning to date on the costs of policy inaction, the IMF said “financial and economic stagnation" could take hold unless governments prevented a "pernicious feedback loop of fragile confidence, weaker growth, low inflation and rising debt burdens" from forming.
José Viñals, the head of the IMF's financial stability division, said a prolonged slowdown could knock around 4pc off global output relative to current expectations over the next five years amid repeated bouts of market turmoil.
“Rising risk premiums may tighten financial conditions further, creating a pernicious feedback loop of fragile confidence, weaker growth, lower inflation, and rising debt burdens”
IMF
Mr Viñals said a $1.3 trillion (£912bn) corporate debt timebomb in China also posed "potentially serious challenges" to financial stability if defaults pushed banks over the edge.
The IMF's global financial stability report said a "loss of market confidence" would drag global bourses into a bear market.
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http://www.telegraph.co.uk/business/2016/04/13/world-faces-lost-year-as-policymakers-sleepwalk-towards-fresh-cr/
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