IMF warns of higher risks for derailed global recovery

The International Monetary Fund (IMF) on Wednesday warned of higher risks for a derailed global recovery and called for urgent policy actions to strengthen growth and manage vulnerabilities.

The Washington-based agency in the day released a document, titled "Note on Global Prospects and Policy Challenges" ahead of the upcoming Group of Twenty, also known as G20, finance ministers and central bank governors' meetings in Shanghai, China.

"The recovery has weakened further amid increasing financial market turbulence and falling asset prices," the IMF said in the research note. "A downgrade (of global growth outlook) is likely as the outlook is revised for the April World Economic Outlook."

In January, it forecast the global economy to grow 3.4 percent this year and 3.6 percent next year, both 0.2 percentage points lower than its forecast in last October.

In view of the weakness of the recovery and turbulence in the financial markets, the global economy is highly vulnerable to adverse shocks, said the IMF.

According to the agency, the financial market turbulence could not only tighten financial conditions in advanced economies and hurt their growth, but also trigger capital outflows from emerging markets and further tighten financial conditions in these economies, resulting in further currency depreciations and funding challenges.

Further declines of commodity prices, oil in particular, could further weigh on inflation outlook and hurt commodity exporters, and the less-than-expected boost to demand in oil-importing countries from lower oil prices could also have negative effects on global economy, said the IMF. Other risks, including sharper-than-expected slowdown in China and worsening of geopolitical tension, could also derail the global recovery.

Although China's transition to a more balanced growth model is likely to entail spillovers through trade and commodities, the rebalancing would benefit global growth and reduce tail risks, said the global lender, suggesting the international community should support China's efforts to reform and rebalance its economy.

"The fragile conjuncture increases the urgency of a broad-based policy response that strengthens growth and manages vulnerabilities," said the IMF.

It called on advanced economies to keep monetary policy accommodative, while reducing over-reliance on monetary policy. It also urged both advanced and emerging economies to push forward structural reforms, strengthen supervision and macro-prudential frameworks, and address corporate and banking sector vulnerabilities.

G20 is an international forum for governments and central bank governors from the world's 20 major economies. The G20 meetings will be held on Feb. 26-27 in Shanghai, with the world's lackluster growth outlook and policymakers' potential response atop the agenda. Endit