Global growth prospects “have become weaker” — IMF’s Lagarde

International Monetary Fund Managing Director Christine Lagarde said growth was picking up in the euro area and Japan and still looked robust in the United States and Britain.

“The good news is that we are seeing a modest pickup in advanced economies”, Lagarde said at an event sponsored by the Council of the Americas.

As a reminder, next week will bring the IMF’s updated global projections, and Lagarde warned that global growth likely will be weaker this year than last, with only a modest acceleration expected in 2016. She also said that it is still not clear if these weak signs are cyclical or caused by fundamental downturn. Countries such as Russian Federation and Brazil are facing serious economic difficulties.

The World Trade Organization announced that it had cut its forecasts for global goods trade earlier on Wednesday after quarterly growth turned negative, with trade shrinking by an average of 0.7 percent in the first two quarters of this year.

“We see global growth that is disappointing and uneven”, Lagarde said. The IMF’s previous forecast was for growth of 3.3 per cent this year. “In addition, medium-term growth prospects have become weaker”, she said.

“This is part of a necessary adjustment in global financial conditions”.

More broadly, most advanced economies should continue to keep monetary policy loose, while incorporating “spillover” risks into their decision making.

Instead, a faster-than-expected slowdown in China is rippling around the globe, feeding a fall in commodity prices and exacerbating decelerations in a host of other developing countries.

Lagarde said that China’s new policy will contribute to a prolonged period of low commodity prices, and the change will need to be managed by policymakers.

She urged the eurozone to tackle non-performing loans worth about €900bn.

With low interest rates the norm since the last financial crisis in 2008, businesses built up debt piles – because the interest on repayments would be cheap. The decline in the dollar’s share came amid a growing view that central banks, especially those in emerging markets, have been selling their holdings of the greenback in order to support their own deflating currencies. “And we still have another major upgrade ahead of us – the resolution framework for systemic, globally active financial institutions remains inadequate”.