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IMF’s Lagarde: Prolonged Period Of Low Commodity Prices Ahead

(Kitco News) - Washington - A prolonged period of low commodity prices is on the horizon, said International Monetary Fund head Christine Lagarde on Wednesday.

Addressing the Council of the Americas, Lagarde said that when talking about the economy, there is cause for concern.

“The prospect of rising interest rates in the United States and China’s slowdown are contributing to uncertainty and higher market volatility. There has been a sharp deceleration in the growth of global trade. And the rapid drop in commodity prices is posing problems for resource-based economies,” she said.

Christine Lagarde head of the International Monetary Fund - Photo curtesy of Drop of Light / Shutterstock.com

Lagarde was speaking ahead of the IMF-World Bank annual meeting to be held next week in Lima – its first conference in Latin America in nearly 50 years. During next week’s conference, the IMF will release its world economic outlook numbers.

“[I] can already tell you this: global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016,” she said. The IMF chief added that emerging economies are likely to see their fifth consecutive year of declining rates of growth.

“India remains a bright spot. China is slowing down as it rebalances away from export-led growth. Countries such as Russia and Brazil are facing serious economic difficulties. Growth in Latin American countries, in general, continues to slow sharply,’ she said.

Lagarde highlighted that the economic outlook is heavily affected by “major economic transitions that are creating global ripple effects.”  

“We saw some of these spillovers in recent months; investors were worried about the speed at which China’s economy is slowing. These concerns put further pressure on commodity markets and triggered sizeable currency depreciations in a number of commodity exporters.”

China consumes 60 percent of the world’s iron ore. But as it invests less, China will reduce its appetite for commodities.

“This will contribute to what could be a prolonged period of low commodity prices – a change that will need to be managed by policymakers, particularly in the large commodity exporters,” she said.

Lagarde also addressed the planned normalization of U.S monetary policy.

“The Federal Reserve is poised to raise interest rates for the first time in nine years – although the Fed has also clearly indicated that rates are expected to remain low for some time,” she said. “This transition reflects better economic conditions in the U.S., which is also good for the global economy.”

By Daniela Cambone of Kitco News; dcambone@kitco.com
Follow me on Twitter @DanielaCambone

 

 

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