IMF cuts global growth forecasts and warns that another financial crisis could be coming

China's slump, cheap oil and uncertainty in emerging markets are all causing concern in Washington...

IMF cuts global growth forecasts and warns that another financial crisis could be coming

IMF Managing Director, Christine Lagarde

The International Monetary Fund (IMF) has cut its global growth forecast for the third time in less than 12 months as China's economy slows, commodity prices remain depressed, and the outlook for 'emerging' economies points towards a downturn.

The IMF now forecasts that the world economy will grow by 3.4% in 2016 and 3.6% in 2017 - these are both down by 0.2% since the last forecast in October.

These figures come on the same day that China published data showing its slowest growth rate in 25 years - and one day after oil dropped below $28 per barrel.

The report warns that there is a risk of another global financial shock with "broader contagion effects."

However IMF chief economist, Maurice Obstfeld has said that volatility on the world's markets early in 2016 has been irrational:

"Financial markets are overreacting," he told The Financial Times adding that this has been motivated by fear - and poor communication by officials in China.

"We don't see a big change in the fundamentals in China compared to what we saw six months ago, but the markets are certainly very spooked by small events there that they find hard to interpret.

"The recommendation to the Chinese authorities is that they clarify their intentions. China needs clear and credible communication with the markets," he said.

Responding to fears that interest rate increases in the US could increase pressure on emerging countries who are reliant on borrowings made in US dollars he said, "Clearly there is a difficult adjustment ahead in emerging markets and they will have to upgrade their economic models and policy frameworks to return to robust potential growth, but this need not involve a crisis."

The outlook for Europe more positive than other regions, its economy is expected to grow by 1.7% as cheap energy prices lead to higher private consuption.