International Monetary Fund Managing Director Christine Lagarde said Wednesday that the IMF underestimated the effects of downside risks on the global economy.
The risks are "bigger on the horizon than what we would have thought," she said. Ms. Lagarde, who was speaking at the World Economic Forum here, identified three key threats: falling oil prices; slowing economic growth in China ; and an asynchronous monetary policy, involving the expected tightening of U.S. monetary policy at a time when many other countries are easing monetary conditions.
The remarks come amid growing market volatility, as the monthslong drop in oil prices and renewed uncertainty about the magnitude of the slowdown in China , the world's second-largest economy, have dragged stocks sharply lower this year. Global stocks resumed the year's steep selloff Wednesday as oil prices sank to a 12-year low.
On Tuesday, China released an annual GDP growth rate of 6.9%, its weakest pace in a quarter century. The spillovers of China's faster-than-expected slowdown--largely through falling demand for commodities and other imports--have been larger than the IMF expected.
However, Ms. Lagarde played down the growing concerns over China's economy. She said the fears are "a little bit overdone" and that China is moving to a "more stable and more sustainable model."
She also pointed to the potential upside of perceived risks. Plunging oil prices can be a boon for consumers and importing countries, she said.
"If the Fed is raising interest rates, it also means that the U.S. economy isn't doing too badly," Ms. Lagarde added.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
01-20-16 1217ET
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