WASHINGTON, D.C.: International Monetary Fund (IMF) chief Christine Lagarde warned on Thursday (Friday in Manila) that the slowdown in emerging-market economies could lead to rising inequalities in the global economy.
In the wake of China’s cooling economy and the steep fall in commodity prices, the emerging-market economies are seeing growth falter and are facing “a new, harsh reality,” Lagarde said in a speech at the University of Maryland.
“Growth rates are down, capital flows have reversed, and medium-term prospects have deteriorated sharply,” the IMF managing director told a forum, according to the prepared text of her speech.
China, the world’s second-largest economy, posted its weakest growth in a quarter of a century in 2015, and Brazil and Russia are in recession.
The IMF now projects that income levels of the emerging and developing economies will converge to advanced economy levels at less than two thirds the pace it predicted a decade ago, Lagarde said.
“This means that millions of poor people are finding it more difficult to get ahead. And members of the newly created middle classes are finding their expectations unfulfilled,” she said.
The consequences of the interconnected global slowdown will not be merely economic, she pointed out: “It also carries with it the risk of rising inequality, protectionism, and populism.”
To address the growing global weakness, the IMF chief recommended that emerging-market economies, particularly those that export commodities, improve their spending policies and increase non-commodity revenues to make their budget adjustments “less painful.”
And to boost growth, Lagarde called on both advanced and emerging economies to step up efforts to open up global trade systems “and promote trade integration through regional and multilateral agreements.”
Earlier Thursday, the biggest trade deal in history was signed in New Zealand, yoking 12 Pacific Rim countries in the Trans-Pacific Partnership that aims to slash tariffs and trade barriers for 40 percent of the global economy.
The US-led initiative, which does not include China, requires ratification by the member states before it takes effect.