IMF warns global economy is ‘highly vulnerable’

The International Monetary Fund has said that the global economy is “highly vulnerable” and urged the United States and other large nations to prepare contingency plans that could be rolled out quickly.

The report was prepared for senior officials of the G20, the world’s 20 largest economies, before a meeting in Shanghai later this week amid falling stock markets, volatile currencies and signs of economic weakness.

The IMF report said a fragile global recovery has weakened further in the face of falling oil prices and diminished growth prospects in China and other emerging market countries.

“The G20 must plan now for coordinated demand support using available fiscal space to boost public investment,” IMF staff said in the report.

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It added that G20 nations should also develop additional measures that could be implemented quickly if growth keeps wilting.

The IMF last month trimmed its economic forecast for global growth by 0.2 percentage points for both 2016 and 2017, reducing its projection to 3.4 percent this year and 3.6 percent next year.

The new report said a further downgrade is “likely” in April when the IMF’s next forecast is released.

The organisation said that countries at the centre of the current Syrian refugee crisis and epidemics such as the Zika virus “are shouldering a burden for others and could be backed up by a coordinated global initiative”.

Middle East tax reform

On Tuesday, IMF chief Christine Lagarde renewed her call for greater taxation and fiscal reforms as a pathway to political stability in her second speech this week in the Middle East.

“I think the economic issues have to be at the table,” Lagarde said in remarks at the Global Women’s Forum in Dubai.

“We cannot stop the warriors, we cannot bring truce, but certainly we can help with good economic policies … with a state that actually works for the benefit of people, that collects tax, that organises public spending in an efficient way for countries, that finances infrastructure projects where it’s needed.”

Lagarde also said oil-dependent states face a “new reality” as global prices hover around $34 a barrel, down from more than $110 in mid-2014.