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China's economic distress is risk to global economy: IMF and ECB

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September 7
9:10 PM 2015

After the market downfall from the previous weeks, IMF and ECB gave a warning on the effects of China's deceleration.

Both European Central Bank and International Monetary Fund admonished the risks of economic growth from China's slowdown and other establishing markets.

Mario Draghi has announced that Eurozone GDP expectations had been downgraded for both 2015 and 2016 after an IMF report spoke of larger-than-expected impact for other countries. 

He told a news conference about falling prices to return or negative inflation, which was possible in the coming months despite its €1.1tn quantitative easing (QE) programme, due to run until next September in a bid to increase prices and activity.

The value of the euro went down against the dollar and stocks soared quickly after his comments as investors craved the prospect of more QE.

China's affliction has sent the prices of raw materials especially oil into a freefall, badly affecting  Brazil, Russia and other commodity exporters.

The IMF said emerging-market countries should allow their currencies fall essentially to support exporters and economic growth.

Last month yuan's devaluation had a limited effect amid the stock market restlessness of recent weeks, being mostly blamed on China's struggles and fears of a US Federal Reserve rate increase.

Troubled China received wide international support in regards to its economic policy and changes to its currency peg on Saturday.  Along with finance ministers and central bankers from the world's leading economies that accept Beijing was managing a difficult economic transition.

Chinese authorities were able to convince most leading finance ministers as well as central bankers that yuan devaluation and the new currency management arrangements were a step on the road to a more market-determined exchange rate.

The consolation about China's intentions came as the G20 finance ministers and central bank governors, representing 85% of the global economy, commit to taking steps for growth improvement and expressed confidence in the economic outlook.  The positivity came despite evidence that global growth is less expected.

Christine Lagarde, managing director of the International Monetary Fund, said there had been a very open dialogue with China over its economy and policies and she thought it "extremely comforting to have that level of understanding".

"Most things are just too low. Growth is too low, productivity is too low, trade numbers are too low, investment is too low, infrastructure projects are too few and the only thing that is too high is unemployment," according to Christine Lagarde, International Monetary Fund.

She urged again the US Federal Reserve not to increase interest rates until it was absolutely sure it had fulfilled its mandate on price stability and the labour market even though she refused to put a date on when the Fed should act.

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