September 30, 2015 / 3:16 PM / 3 years ago

Softness in global economy to extend into 2016 as developing world drags: IMF

WASHINGTON (Reuters) - A relentless deceleration in the economies of the developing world will cause global growth to slow this year and only pick up a bit more pace in 2016, the head of the International Monetary Fund said on Wednesday.

International Monetary Fund (IMF) Managing Director Christine Lagarde sits for an interview at IMF headquarters in Washington July 1, 2015. REUTERS/Jonathan Ernst

In a speech that previewed a report on global growth due next month, IMF Managing Director Christine Lagarde held back from giving specific estimates.

But her comments appeared to be more pessimistic than the global lender’s forecast made in July, just before global financial markets erupted into turmoil over concerns that China’s economy could crash.

Lagarde said China needs to keep trying to rebalance its economy away from commodity-intensive investment but also must be careful to safeguard “demand and financial stability.”

In a survey of the global economy, she said growth was picking up in the euro area and Japan and still looked robust in the United States and Britain.

“The not-so-good news is that emerging economies are likely to see their fifth consecutive year of declining rates of growth,” she said.

“Global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016,” she said.

In July, the IMF forecast a marginal slowdown in global growth this year to 3.3 percent from 3.4 percent in 2014, with a rebound to 3.8 percent growth in 2016.

Lagarde warned there could be a “prolonged period” of low prices for the commodities that are central to the economies of many developing countries. She urged emerging markets to diversify their economies and said some of them might be ill prepared to weather the financial storm that could arise when the U.S. Federal Reserve eventually raises interest rates.

“We are concerned about their capacity to buffer shocks,” Lagarde said.

Policymakers in emerging markets should keep a closer eye on company debts denominated in dollars as well as to the banks that lent to them, she said.

The IMF said on Tuesday emerging market firms have racked up debts of $18 trillion and rate hikes in the developed world could spur a rash of corporate bankruptcies.

Reporting by Jason Lange and Lindsay Dunsmuir in Washington; Editing by Chizu Nomiyama and Meredith Mazzilli

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