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Christine Lagarde

NEW YORK – The world’s stuttering economic recovery will continue to disappoint next year, the head of the IMF has warned.

Rising United States interest rates, a Chinese slowdown and disappointing world trade will all weigh on growth prospects in 2016, said Christine Lagarde.

The IMF estimates the global economy will expand by 3.6pc next year, but Lagarde – writing in German business daily Handelsblatt – said growth would be “disappointing and uneven”.

Lagarde highlighted the “spillover” effects from the first interest rate hike in the US in nine years, warning that it could lead to tighter credit conditions and higher debt servicing costs for emerging markets.

Companies that have loaded up on dollar-denominated debt are at particular risk from the Federal Reserve’s decisions. Mass defaults could then “infect” banking systems and governments, cautioned the IMF’s managing director.

The IMF has calculated that emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014.

Any “failed normalisation” of interest rates and market conditions would wipe 3pc from the world’s economic output over the next two years, according to the Fund’s financial stability report.

To ward off these risks, other advanced economies should now continue to keep monetary policy accommodative, added Lagarde.

The IMF has urged both the European Central Bank and the Bank of Japan to continue their unprecedented quantitative easing policies and maintain record low interest rates in an uncertain global environment.

“Most highly developed economies except the US and possibly Britain will continue to need loose monetary policy but all countries in this category should comprehensively factor spillover effects into their decision making,” she said. – Telegraph