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IMF Urges G20 To Adopt A Global Stimulus Plan

international monetary fundThe International Monetary Fund (IMF) has issued a cautionary warning stating that the global economy is currently vulnerable and urged countries to develop a concerted stimulus plan to tackle the global slowdown. The IMF has stated this in a report released in preparation for the proposed G20 meeting that is scheduled to take place this week.

In a statement, IMF said,

The global recovery has weakened further amid increasing financial turbulence and falling asset prices. Strong policy responses both at national and multilateral levels are needed to contain risks and propel the global economy to a more prosperous path.

The report will be presented to the finance ministers and central bank chiefs of the G20 economies meeting in Shanghai. The IMF has indicated that given the slowdown in the global markets, it is likely to further lower its forecast for global growth in 2016 in April. It had cut its forecast of global growth to 3.4 percent just a few weeks ago.

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IMF also stated that global activity had slowed unexpectedly from late 2015 onwards. The report has listed contributing factors like tightening markets in emerging economies, falling equity and commodity markets and the oil price crash as key reasons why the economy has slowed down and increase its volatility. The recent decision of U.S. Federal Reserve to hike interest rates after years of near-zero rates has resulted in investors moving out of underperforming economies to U.S. markets.

The IMF is urging the nations meeting in Shanghai to draw up a stimulus package with concerted action from all economies to counter the slowdown and support demand. It has asked central banks to retain monetary policies that improve financial liquidity to encourage economic growth while ensuring appropriate fiscal policies. The fund has also called for emerging market economies to adopt flexible exchange rates when possible and engage in foreign exchange interventions sparingly.

The Shanghai G20 meeting is being likened to the G20 meeting in April 2009 when a coordinated stimulus package was agreed to avert a worldwide depression arising from the global financial crisis. The U.S. Treasury Secretary Jack Lew however brushed off suggestions of a G20 emergency plan saying that economies were doing better than expected and investors should not expect a response disproportionate to the situation.

In addition to the Chinese slowdown and the commodity crises, the IMF has said that economic stress is being caused by geopolitical issues like the Zika virus in South America and the Syrian refugee crisis. It stated that that the countries bearing the brunt of such crises could be aided by supportive programs such as those offered by the IMF.

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