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IMF: China’s Economic Slowdown Arrives on American Shores

The IMF says the ripple effects from China's economic slowdown are hurting global growth.

GettyImages-490679294
GettyImages-490679294

The global economy is slowing down, and it’s taking the United States with it.

That’s according to the International Monetary Fund, which released its global growth forecast on Tuesday, ahead of its annual meeting in Peru on October 9. According to the bank, the global economy will grow 3.1 percent this year, down from its previous prediction of 3.3 percent.

The IMF blames the slowdown on the domino effect of China’s continuing economic slide. Lessened demand from Chinese consumers led to a drop in commodity prices, inflicting pain on emerging markets like Brazil, which rely on iron, grain, and other raw materials to bolster their economies. The bank also warned of growing piles of debt in emerging markets -- over the last five years, companies in up-and-coming economies have increased debt levels to 30 percent of gross domestic product. The Institute of International Finance, which is the global association of the financial industry, reported earlier this week that more than a trillion dollars have fled emerging markets this year, the first net exodus in 27 years.

The global economy is slowing down, and it’s taking the United States with it.

That’s according to the International Monetary Fund, which released its global growth forecast on Tuesday, ahead of its annual meeting in Peru on October 9. According to the bank, the global economy will grow 3.1 percent this year, down from its previous prediction of 3.3 percent.

The IMF blames the slowdown on the domino effect of China’s continuing economic slide. Lessened demand from Chinese consumers led to a drop in commodity prices, inflicting pain on emerging markets like Brazil, which rely on iron, grain, and other raw materials to bolster their economies. The bank also warned of growing piles of debt in emerging markets — over the last five years, companies in up-and-coming economies have increased debt levels to 30 percent of gross domestic product. The Institute of International Finance, which is the global association of the financial industry, reported earlier this week that more than a trillion dollars have fled emerging markets this year, the first net exodus in 27 years.

The IMF said modest growth in the United States, and anemic growth in the eurozone, aren’t enough to offset the bleak picture in China and countries like South Africa, Turkey and Brazil. U.S. manufacturing job losses and a long expected interest rate hike by the U.S. Federal Reserve, a move that would make borrowing more expensive and could hamper economic growth, all combine to paint the IMF’s grim forecast. The bank lowered its 2015 projection for U.S. economic growth half a percent to 2.6 percent, and its 2016 estimate to 2.8 percent, down 0.3 percent.

“Six years after the world economy emerged from its broadest and deepest postwar recession, a return to robust and synchronized global expansion remains elusive,” Maurice Obstfeld, the IMF’s new chief economist, wrote in the forward to the latest World Economic Outlook.

The forecast is evidence of China’s outsized influence on the global economy. It’s the world’s second-largest, and was able to sustain growth during the Great Recession as other nations faltered. According to the Bloomberg Markets ranking of the most influential people in the world economy released October 4, Chinese President Xi Jinping is second, behind only U.S. Fed chief Janet Yellen. According to Bloomberg, Xi is the most influential head of state, beating President Barack Obama, who ranked sixth, and German Chancellor Angela Merkel, who came in ninth.

Whether the IMF report will cause Yellen and her colleagues on the Fed’s Open Market Committee, which sets interest rates, to further delay a rate hike remains to be seen. Yellen has repeatedly hinted that lift-off from near zero borrowing costs would occur this year. But Wall Street isn’t buying it; futures markets now show investors don’t expect a rate increase until March 2016.

Photo Credit: Getty Images

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