News Column

Interest rate rise may cut global growth - IMF

July 30, 2014

Katie Allen

Rising interest rates in advanced economies and a slowdown in emerging markets could combine to cut global growth by as much as 2%, the International Monetary Fund has warned.

Its latest report into how policy moves in one country can spill over into others also highlights the threat that tensions in Russia and Ukraine could send shockwaves through financial and commodity markets across Europe, central Asia and beyond.

The IMF's main concerns, however, centre around two key factors emerging as the global economy "shifts from crisis to recovery mode".

It highlights the challenge for central banks of smoothly unwinding the ultraloose monetary policy they brought in to support advanced economies during the financial crisis. Secondly, it warns that emerging market economies are slowing in a "synchronised and protracted manner" and that poses risks to the rest of the world in terms of trade and finance.

The report is the latest to emphasise the complex task of returning to more normal interest rates after years of extraordinary measures to shore up markets and confidence. It also warned about the swings in exchange rates between currencies if policy is tightened at different times in different countries. That appears to be a very real risk with the eurozone easing policy and the UK and US getting closer to tightening.

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Source: Guardian (UK)

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