Global economy faces increasing risk: IMF head

CANBERRA - The global economy faces increasing “downside risks” including rising oil prices, falling stock markets and trade imbalances, the head of the International Monetary Fund warned Tuesday.

By (AFP)

  • Follow us on
  • google-news
  • whatsapp
  • telegram

Published: Tue 13 Jun 2006, 2:45 PM

Last updated: Sat 4 Apr 2015, 3:24 PM

Rodrigo de Rato, managing director of the Washington-based fund, predicted that global economic growth would be close to 5.0 percent in 2006.

But in a speech to the National Press Club in the Australian capital, Canberra, he said risks to economic growth were increasing - a fact borne out by jittery stock markets across the world.

“Downside risks have clearly increased, as evidenced by increased financial market concerns,” said de Rato, in the prepared text of his speech to the club.

“And although what we have seen so far is a fairly modest correction of previous increases in asset prices, there is evidence of heightened risk aversion as investors reassess prospects for liquidity, inflation and growth.”

His speech came as stock markets across the region dropped sharply Tuesday as fears of higher US interest rates continued to hit investor confidence.

In Australia, stocks closed down 2.56 percent as investors awaited key US inflation data for their next lead on the interest rate outlook.

De Rato said central banks were treading a tightrope as they tried to dampen inflationary pressure without stifling growth.

“In the face of rising inflationary expectations and concerns that higher interest rates may choke off growth, the balancing act that central banks around the world must undertake has become more difficult,” he said in the prepared text.

The “small but very serious risk of an avian flu pandemic” and ”high and volatile oil prices” both posed a threat to the global economy, de Rato said, and named “global payment imbalances” as the third major risk.

The large current account deficit in the US balance of payments was the most obvious indicator of a global imbalance, de Rato said, adding it was not sustainable.

“American consumers cannot support demand in the rest of the world indefinitely and other countries will not continue to finance American consumption indefinitely,” he said.

“Actions to bring about a gradual reduction in imbalances are needed. The risk is that if nothing is done, imbalances will not be reduced gradually but suddenly and in a disruptive way.”

De Rato said that China, countries in the eurozone, Japan, Saudi Arabia and the United States had agreed to participate in a ”multilateral consultation” proposed by the IMF to discuss the issue.

He said the consultations would take place throughout 2006.

More news from