Euro-area deflation, emerging-markets turmoil threaten positive global economic prospects.
Risks of prolonged market turmoil in emerging markets and of deflation in the euro area are threatening the world's improved economic prospects, according to the
The IMF, in a staff report prepared for central bankers and finance ministers from the Group of 20, said the recovery is still weak and "significant downside risks remain". A January global growth forecast of 3.7 per cent for this year, from three per cent in 2013, hinges on recent market volatility from
"Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern," according to the report prepared ahead of the G-
Rising political tensions from
Stocks fell after the IMF report.
To weather the current turbulence, the
"Exchange-rate flexibility should continue to facilitate external adjustment, particularly where currencies are overvalued," IMF staff wrote. Currency intervention "where reserves are adequate, can be used to smooth excessive volatility or prevent financial disruption."
Advanced economies must maintain accommodative monetary policy, with the Fed needing to pay particular attention to its communication over the gradual adjustment of its asset purchases, according to the note.
Fed makers plan to soon change their guidance for the path of interest rates as unemployment declines toward a threshold for considering an increase in borrowing costs, minutes of their January meeting showed on Wednesday. In the 18-country euro area, which is "turning the corner from recession to a weak recovery," the fund urged authorities to make it clearer that public backstops will be available for banks that may need funds after stress-test results.
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