IMF Managing Director Christine Lagarde said Tuesday that the organization expects global economic growth to weaken and that Asia , while expected to lead growth, risks slowing further due to the recent volatility in financial markets.
Ms. Lagarde said in a speech at the University of Indonesia , during a visit to the world's fourth-most populous country, that global growth was threatened by two forces: "A weaker-than-expected recovery in advanced economies and a further slowdown in emerging economies, particularly in Latin America ."
In a quarterly report in July, the Washington -based International Monetary Fund reduced its forecasts for global growth to 3.3% from 3.5%. That reflects growth of 2.1% in advanced economies and 4.2% in what the IMF calls emerging markets and developing economies.
" Asia as a region is still expected to lead global growth," Ms. Lagarde said. But even in Asia , the pace "is turning out a little bit slower than expected--with the risk that it may even slow further given the recent spike in global risk aversion and in financial market volatility."
On Tuesday, Asian markets extended a turbulent stretch in which fears over a slowdown in China have weighed on commodities and worries about a devalued Chinese yuan have triggered steep declines in stocks around the globe.
The IMF has expected a gradual slowdown in China as the world's second-largest economy adjusts to a new growth model and a more market-based economy, Ms. Lagarde said, with forecasts in July calling for growth to slow from 7.4% last year to 6.8% this year and 6.3% in 2016. "It's a natural slowdown, at the stage of development for all such large developing countries," she said.
"There might be more bumps on the road, but it's hardly surprising when you move from a very controlled economy where intervention was the rule, " Ms. Lagarde said. The IMF believes Beijing has the policy tools and financial buffers it needs to manage that transition, she added.
Still, Ms. Lagarde said emerging economies such as Indonesia "need to be vigilant to handle potential spillovers from China's slowdown and tightening of global financial conditions."
Relative to other emerging-market economies, she said that Indonesia "is in a pretty strong place, and in a much, much better position than where it was 20 years ago" when it sought and received an IMF bailout during the Asian financial crisis of the late 1990s.
Ms. Lagarde lauded Indonesia's "very sound public finances" and President Joko Widodo's plans to spend more on building new infrastructure and adding power plants. Those will help the near trillion-dollar economy "get on the right side" of global economic shifts, she said, including the downturn in China and a pending Federal Reserve rates increase in the U.S., which she said poses a risk for emerging economies in the form of weaker capital flows, higher interest rates and financial volatility.
Indonesia is prone to swings of capital flight, and last week its finance minister said it was time the U.S. lifted its rates from near zero to reduce uncertainty in the global economy.
Indonesia won a measure of fame for growing at a strong clip during the 2008 global financial crisis. But it has been deeply affected by the recent fall in demand from China , its principal market for coal and other commodities. The rupiah has fallen to the weakest level against the dollar in 17 years and growth slipped to a six-year low in the second quarter.
Ms. Lagarde said Indonesia , Southeast Asia's largest economy, would benefit from further trade liberalization and said it would it should follow in the footsteps of Japan , South Korea and China in "engaging more fully with the world."
For many Indonesians, Ms. Lagarde's arrival brings memories of 1998, when the IMF signed terms for a bailout during the Asian financial crisis that led to the ouster of President Suharto, who had led the nation for three decades. Many Indonesians think that bailout was a mistake that crippled the economy for years. Indonesia's rupiah recently touched its lowest level since that crisis, hard hit by weakening demand for its goods and the dollar's strength against global currencies.
In her address to students, Ms. Lagarde sought to dispel uncertainty about her visit, saying it was planned long in advance, and centered on a conference Wednesday with Bank Indonesia on Asian finance. She later stressed that generally her organization's main roles are surveillance of economies world-wide and the provision of technical assistance and capacity building in fields such as taxation and financial services.
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