Date: 2016-08-12

International Finance Officials Warn of Potential Downside Risk to Global Economy

Jeff Nemesi

According to a draft of a communique that the International Monetary Fund (IMF) and World Bank Development Committee plan to release on October 11, finance and development officials are warning of major current downside risks to the global economy. The major risks that are cited include potential deflation in Europe, Japanese recession, and a slowing Chinese economy.

The Chinese Economic Growth Forecast has been cut by the World Bank due to the government’s policy efforts to address financial vulnerabilities and structural constraints in order to achieve a sustainable growth path. East Asian countries also had growth forecasts lowered due to slowing economies in Thailand and Indonesia. Thailand has been suffering from political unrest, while Indonesia’s commodity prices are struggling and infrastructural constraints prohibit diversification. The European Central Bank (ECB) will use some form of quantitative easing in order to attempt to rescue Europe from potential debt deflation, as bond yields are falling to record low levels. It takes a very long time for the ECB to build a consensus for action among key member states, and because of this, the quantitative easing may not be enough to save Europe. As for Japan, industrial production output has now fallen three out of the five months since Japan raised sales tax in April.  It is expected that Japanese administration will downgrade its rating of the economy from “standstill” to “change of phase”, signaling the acceptance of recession in Japan.

The draft called for the World Bank and the IMF to monitor poor countries\\' vulnerability to shocks in order to limit dangers from public debt. The World Bank’s fund for the poorest provides aid to impoverished countries, and since 2000, twenty percent of these countries have not shown growth in per capita output. These are the countries that are most vulnerable should the global economy take a hit. What do you think that the IMF and World Bank should implement to avoid another global economic crisis? Where do you see the global economy in five years?

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