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IMF Seeks Contingency Plans for Vulnerable Global Economy

Report says fragile global recovery weakens further in the face of increasing financial market turbulence
By The News · 24 of February 2016 17:39:03
File photo of IMF Managing Director Lagarde attending the session "The Global Economic Outlook" during the annual meeting of the World Economic Forum in Davos, Christine Lagarde, Managing Director of the International Monetary Fund (IMF) attends the session "The Global Economic Outlook" during the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, in this January 23, 2016 file photo. Lagarde has been nominated to second term as the agency's managing director, the IMF said in a statement on February 11, 2016. REUTERS/Ruben Sprich/Files, No available

The Associated Press

WASHINGTON – The International Monetary Fund said Wednesday that the global economy is “highly vulnerable” to adverse shocks and urged the United States and other major governments to prepare contingency plans that could be rolled out quickly to boost growth.

The IMF report said a fragile global recovery has weakened further in the face of increasing financial market turbulence, falling oil prices and diminished growth prospects in China and other emerging market countries.

The lending agency said that the world’s 20 largest economies should keep pursing growth strategies they have already unveiled. But it adds that G-20 nations should develop additional measures that could be implemented quickly if growth keeps wilting.

The IMF report will be delivered at a meeting Friday and Saturday of G-20 finance officials in Shanghai. Treasury Secretary Jacob Lew and Federal Reserve Chair Janet Yellen will represent the United States at the discussions.

Lew played down any expectations that the Shanghai meeting would produce specific growth plans similar to the ones rolled out in the spring of 2009 when policymakers were trying to restore confidence in the wake of the 2008 financial crisis and a deep global recession.

“Don’t expect a crisis response in a non-crisis environment,” Lew said in an interview broadcast Wednesday by Bloomberg Television. “It’s not the job of finance ministers and central bank governors to accelerate a crisis. It’s our job to try and avoid a crisis.”

Lew said that he did not expect the G-20 discussions to produce specific plans of “what each country is going to do and how.”

Rather, he said the meeting would likely produce “a more stable understanding of what the future may look like” including greater clarity form the Chinese government about its plans to deal with a pronounced slowdown in that country. Worries about China’s intentions have been blamed for increasing market volatility this year.

The IMF last month trimmed its economic forecast for global growth by 0.2 percentage point for both 2016 and 2017, reducing its projection to 3.4 percent this year and 3.6 percent next year. The new report said a further downgrade is “likely” in April when the IMF’s next forecast is released.

All of the economic headwinds point “to higher risks of a derailed recovery, at a moment when the global economy is highly vulnerable to adverse shocks,” the IMF cautioned.

The report said that policymakers should not rely too much on central banks keeping interest rates low to bolster growth. Where appropriate, tax cuts and government spending increases should be used to support economic growth, the IMF said.

In addition, the IMF said that countries at the center of the current Syrian refugee crisis and epidemics such as the Zika virus “are shouldering a burden for others and could be backed up by a coordinated global initiative.”