WASHINGTON (Dow Jones)--Downside risks to the global economy are compounding, creating a crisis of confidence in markets around the globe, the head of the International Monetary Fund warned Friday.
"The bad news is that there are downside risks on the horizon, and they are piling up," IMF Managing Director Christine Lagarde told finance ministers and central bankers at the IMF and World Bank's fall meetings.
She described a global economy "propelled by a negative feedback loop" that involves weak growth, weak balance sheets for nations, banks, and households. Compounding these problems, Ms. Lagarde said, was "inefficient political commitment" to solving these global financial problems.
Ms. Lagarde's remarks came after the Group of 20 industrial and developing nations, following a broad sell-off in the international markets, late Thursday released a surprise statement that committed to take "strong and coordinated" action to stabilize the global financial system. Euro-zone G-20 members also pledged to "maximize" the region's bailout fund to fight instability in the markets.
The G-20 committed to take all "necessary actions to preserve the stability of banking systems and financial markets as required."
The group said it will ensure that banks are adequately capitalized and have sufficient access to funding and that central banks will continue to "stand ready" to provide liquidity for banks as needed.
A U.S. official said Thursday's meeting showed a previously unknown sense of urgency throughout the G-20 membership, reflecting concern about elevated risk in the financial markets. Emerging market countries, for their part, are increasingly worried about the risk of the debt crisis spilling over into their economies, the U.S. official said.
Financial markets began to stabilize on Friday, with the Dow Jones Industrial Average gaining about 26 points to 10759 in late morning trading. The index plunged 675 points in the last two sessions and is down about 7% this week, on pace for its worst weekly performance since the financial crisis.
Meanwhile, finance ministers and central bankers, appearing at various events throughout Washington on Friday, where they elaborated on the global economic outlook. China's Finance Minister called for global coordination to deal with "severe challenges" facing the world economy, saying balanced Chinese growth will help support the recovery.
"The world economy is now slowly recovering, but the uncertainties and destabilizing factors are increasing," Xie Xuren said in a statement to the IMF and World Bank meeting. Risks include the European debt crisis, weak U.S. labor and property markets, and a buildup of inflation in emerging economies, he said.
Not all officials shared a gloomy outlook for their respective economies. China's economy is in "good shape," but faces challenges such as "imbalance" and the need for more sustainable development, said Xie. He reiterated that China will seek to balance efforts to maintain rapid economic growth, restructuring the economy and managing inflation expectations.
Germany's Finance Minister, Wolfgang Schaeuble, also played down dire warnings about the global economy. Schaeuble described the slowdown in the world economy as "not so dramatic." Deutsche Bundesbank President Jens Weidmann argued that "the economic situation is far better than the sentiment." Weidmann acknowledged that "poor sentiment is starting to spill over into the real economy."
Meanwhile, Spain's Finance Minister Elena Salgado said that over the past few months, growth prospects have weakened and called for urgent moves to bring the global economy back on a recovery path.
"During the summer, prospects for global growth and financial stability have deteriorated and downside risks have increased," Salgado said at the IMF and World Bank annual meeting.
One issue facing the officials concerns the size and power of rescue funds. Ms. Lagarde called for increased IMF resources. The G-20 statement more specifically addressed the euro zone problems, asking countries to pursue increasing the powers of the European bailout fund and "to maximize its impact in order to address contagion."
Canadian Finance Minister Jim Flaherty addressed this matter Friday, saying euro zone policy makers need to establish a larger financial backstop for troubled countries and banks, referring to the European Financial Stability Fund, which sits at a level of 440 billion euros.
"We have been pressing for the need to have adequate capacity in the European facility in order to deal with bank recapitalization in Europe," Flaherty said. "Our view is that it needs to be larger to have the clear capacity to overwhelm the problem."
Source: http://online.wsj.com
"The bad news is that there are downside risks on the horizon, and they are piling up," IMF Managing Director Christine Lagarde told finance ministers and central bankers at the IMF and World Bank's fall meetings.
She described a global economy "propelled by a negative feedback loop" that involves weak growth, weak balance sheets for nations, banks, and households. Compounding these problems, Ms. Lagarde said, was "inefficient political commitment" to solving these global financial problems.
Ms. Lagarde's remarks came after the Group of 20 industrial and developing nations, following a broad sell-off in the international markets, late Thursday released a surprise statement that committed to take "strong and coordinated" action to stabilize the global financial system. Euro-zone G-20 members also pledged to "maximize" the region's bailout fund to fight instability in the markets.
The G-20 committed to take all "necessary actions to preserve the stability of banking systems and financial markets as required."
The group said it will ensure that banks are adequately capitalized and have sufficient access to funding and that central banks will continue to "stand ready" to provide liquidity for banks as needed.
A U.S. official said Thursday's meeting showed a previously unknown sense of urgency throughout the G-20 membership, reflecting concern about elevated risk in the financial markets. Emerging market countries, for their part, are increasingly worried about the risk of the debt crisis spilling over into their economies, the U.S. official said.
Financial markets began to stabilize on Friday, with the Dow Jones Industrial Average gaining about 26 points to 10759 in late morning trading. The index plunged 675 points in the last two sessions and is down about 7% this week, on pace for its worst weekly performance since the financial crisis.
Meanwhile, finance ministers and central bankers, appearing at various events throughout Washington on Friday, where they elaborated on the global economic outlook. China's Finance Minister called for global coordination to deal with "severe challenges" facing the world economy, saying balanced Chinese growth will help support the recovery.
"The world economy is now slowly recovering, but the uncertainties and destabilizing factors are increasing," Xie Xuren said in a statement to the IMF and World Bank meeting. Risks include the European debt crisis, weak U.S. labor and property markets, and a buildup of inflation in emerging economies, he said.
Not all officials shared a gloomy outlook for their respective economies. China's economy is in "good shape," but faces challenges such as "imbalance" and the need for more sustainable development, said Xie. He reiterated that China will seek to balance efforts to maintain rapid economic growth, restructuring the economy and managing inflation expectations.
Germany's Finance Minister, Wolfgang Schaeuble, also played down dire warnings about the global economy. Schaeuble described the slowdown in the world economy as "not so dramatic." Deutsche Bundesbank President Jens Weidmann argued that "the economic situation is far better than the sentiment." Weidmann acknowledged that "poor sentiment is starting to spill over into the real economy."
Meanwhile, Spain's Finance Minister Elena Salgado said that over the past few months, growth prospects have weakened and called for urgent moves to bring the global economy back on a recovery path.
"During the summer, prospects for global growth and financial stability have deteriorated and downside risks have increased," Salgado said at the IMF and World Bank annual meeting.
One issue facing the officials concerns the size and power of rescue funds. Ms. Lagarde called for increased IMF resources. The G-20 statement more specifically addressed the euro zone problems, asking countries to pursue increasing the powers of the European bailout fund and "to maximize its impact in order to address contagion."
Canadian Finance Minister Jim Flaherty addressed this matter Friday, saying euro zone policy makers need to establish a larger financial backstop for troubled countries and banks, referring to the European Financial Stability Fund, which sits at a level of 440 billion euros.
"We have been pressing for the need to have adequate capacity in the European facility in order to deal with bank recapitalization in Europe," Flaherty said. "Our view is that it needs to be larger to have the clear capacity to overwhelm the problem."
Source: http://online.wsj.com
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