IMF meeting: Policymakers to focus on China economic slide

Equity markets falling worldwide, Wall Street recorded its worst quarter since 2011

FRANKFURT: Flanked by interest rate decisions in Britain, Japan and Australia, the IMF’s annual meeting in Lima takes centre stage in the calendar next week, with policymakers focussing on China’s economic slide and its impact on the rest of the world.

Activity in China’s vast factory sector shrank again in September fuelling fears that the economy there may be cooling more rapidly than thought just a few months ago, with a reverberating impact on emerging and developed economies.

Meanwhile, unexpectedly weak US jobs data out on Friday further clouded the global economic picture, and pointed to a much-anticipated rate hike from the Federal Reserve being delayed further.

Equity markets worldwide have been falling with Wall Street just recording its worst quarter since 2011, so IMF delegates, primarily central bank governors and finance ministers from around the globe, will seek reassurances from China that it can smooth, if not halt, its slide.

“Driven by fears of a sharp slowdown, they will likely delay the structural adjustments in the coming two years and use the ‘old normal’ approach to support the economy, that is, rely on credit expansion and public investment,” Nordea economist Amy Yuan Zhuang said.

“Despite the financial market turmoil, we still see a soft landing as the most plausible scenario in the coming two years,” she added.

The world’s biggest economy, the United States is one of the least exposed to China and minutes of the Fed’s September rate meeting, due on Thursday, will give a strong signal of whether a hike, the first in nearly a decade, could still come this year.

“The U.S. stands out for its relatively low exposure to the foreign sector,” Credit Suisse said. “Not only is direct domestic consumption and investment low, but even within investment, the amount done to support export capacity is likely much lower than the other economies, given the US’s low export share.”

Published in The Express Tribune, October 4^th, 2015.

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