Global spillovers from China's slowdown have been “much larger than we could have anticipated,” affecting the global economy through reduced imports and weaker demand for commodities, IMF Economic Counselor Maurice Obstfeld said in an interview posted on the fund's website.
After a year in which China's efforts to contain a stock-market plunge and make its exchange rate more market-based roiled markets, the health of the world's second-biggest economy will again be a key issue to watch in 2016, Obstfeld said.
“Growth below the authorities' official targets could again spook global financial markets,” he said as global equities on Monday got off to a rough start to the year. “Serious challenges to restructuring remain in terms of state-owned enterprise balance-sheet weaknesses, the financial markets, and the general flexibility and rationality of resource allocation.”
Obstfeld, who took over as chief economist at the International Monetary Fund in September, said emerging markets will also be “center stage” this year. Currency depreciation has “proved so far to be an extremely useful buffer for a range of economic shocks,” he said.
“Sharp further falls in commodity prices, including energy, however, would lead to even more problems for exporters, including sharper currency depreciations that potentially trigger still-hidden balance sheet vulnerabilities or spark inflation,” he said.
With emerging-market risks rising, it will be critical for the U.S. Federal Reserve to manage interest-rate increases after lifting its benchmark rate in December for the first time since 2006, Obstfeld said.
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