IMF: Emerging markets slowdown has pushed global economy to edge of recession

The IMF, led by Christine Lagarde, has called on global economic powers to take actions (Source: Getty)

The slowdown in emerging markets such as China and Brazil has pushed the world to the brink of recession, the International Monetary Fund (IMF) warned yesterday.

The world is perilously close to entering a recession again this year and next, according to its latest forecasts.

The fund has cut its forecast for global growth by 0.2 percentage points for 2015 and 2016, to 3.1 per cent and 3.6 per cent respectively, with most of the weakness coming from emerging markets. When the 2008-9 recession hit, the IMF considered global growth of below three per cent to be recession territory.

The organisation said the UK and US will lead economic growth among the major developed nations this year and in 2016, unfazed by recent turmoil in financial markets and slower growth in developing countries. In contrast, falls in commodity prices this year will weigh on the growth of emerging markets.

This also creates other risks, the IMF believes, because weaker currencies for these countries will make any debts they have in dollars more difficult to repay. A further weakening in the outlook for China would exacerbate these problems, the IMF said.

Read more: Slowdown in China may impact on Europe

The Chinese slowdown has already triggered a slump in commodities-related stocks in the UK. FTSE 100 mining giant Glencore has been the index’s worst performer this year, and last month dropped to an all-time low.

The IMF’s forecasts for emerging market growth this year have been taken down a notch to four per cent, from 4.2 per cent.

However, the warning from the IMF could have positive ramifications in turning around the current slow growth cycle, according to Simon French, chief economist at Panmure Gordon.

He told City A.M.: “This is a good warning that governments could and should be doing more to stimulate growth.”

While the IMF may not have the power to actually force governments into taking action, he added, the organisation certainly has a lot of influence in this regard.

In particular, he noted that the IMF had singled out Europe’s largest economy with a plea for action. “Germany was called on to use its fiscal clout to stimulate growth in the Eurozone,” French noted.

“The IMF has been too silent for too long on this subject,” he added. “If this stimulates some governments to act then it's a good thing.”

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