WASHINGTON, July 24, 2014 (AFP) – The International Monetary Fund warned Thursday that geopolitical risks in Ukraine and the Middle East are looming over a global economy already hit by slowdowns in the US and China. “In major advanced economies, there is a risk of stagnation in the medium term,” the IMF warned, recommending that major advanced economies maintain “accommodative” monetary policies.
Emerging-market economies would slow a bit more than previously estimated, to a 4.6 percent growth pace.
“Emerging market economies — particularly those with domestic weaknesses and external vulnerabilities — may face a sudden worsening of financial conditions and a reversal in capital flows in the event of a shift in financial market sentiment,” the IMF said.
Such a scenario occurred in 2013 when investors abruptly withdrew capital from emerging-market economies anticipating that the Federal Reserve would raise its key US interest rate, stuck near zero since late 2008. That did not happen, but the Fed is expected to hike the federal funds rate in mid-2015.
“I don’t think we’ll see major financial chaos in the future… but there are going to be bumps,” Blanchard said.
Despite the worse-than-expe