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IMF delivers warning on health of global economy as China sees growth slowdown

IMF managing director Christine Lagarde has called global growth 'too low, too brittle and too lopsided'

Russell Lynch
Tuesday 20 January 2015 15:36 GMT
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China has come through this pandemic better than the US
China has come through this pandemic better than the US

China has suffered its slowest growth for more than two decades - as the International Monetary Fund sounded a stark warning on the global economy.

Beijing’s official figures showed the world’s second-biggest economy grew at a rate of 7.4 per cent in 2014 — fast by western standards but the slowest for China since 1990, and below its 7.5 per cent target.

Although financial markets cheered slightly faster-than-forecast 7.3 per cent annual growth for China in the final quarter, the IMF also lopped 0.3 percentage points off its October forecasts for global growth, which it now puts at 3.5 per cent for this year and 3.7 per cent in 2016.

Despite a fillip from cheaper oil prices, IMF managing director Christine Lagarde has called global growth "too low, too brittle and too lopsided" to the US which is streaking ahead of other advanced nations.

IMF chief economist Olivier Blanchard said "persistent negative forces" were offsetting lower oil prices and a depreciating euro and yen "including the lingering legacies of the crisis and lower potential growth in many countries".

Blanchard described Russia’s outlook as "quite bleak" and said slower growth in China would hurt nations it imports from, especially in Asia.

"The most obvious risks involve stagnation in the eurozone, or Japan, or both," he added.

The pessimistic verdict kept Brent crude depressed at $48 a barrel, less than half what it cost six months ago as US shale producers and the Opec oil cartel pump crude into a global market where demand is tepid.

China’s economy also faces pressure from cooling property prices as well as debt-laden companies and local governments, keeping pressure on Beijing to take aggressive steps to avoid a sharper slowdown.

The IMF forecasts a further cooling of the growth rate this year to 6.8 per cent. SEB analyst Fredrik Skoglund said China’s demand for raw materials was likely to be "sluggish".

"We believe that this weakness will keep China’s GDP growth relatively low in 2015 and keep commodity prices in check," he added.

London’s blue-chips, however, hit a three-week high as expectations of a large-scale quantitative easing programme from the European Central Bank underpinned demand for shares.

ECB president Mario Draghi is expected to unveil plans to pump at least €500 million (£383 million) into the flagging eurozone economy on Thursday.

Greece meanwhile goes to the polls on Sunday in an election which could see anti-austerity party Syriza claim power.

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