IMF warns of China threat
CHINA’S economic woes could ‘spook’ the financial markets again this year, the I nternational Monetary Fund warned last night.
With shares around the world tumbling on a dismal first day of trading of 2016, the watchdog’s new chief economist said the mood among investors was ‘glum’.
Maury Obstfeld, who joined the Fund in September, said China ‘will remain high on the list’ of challenges facing the world this year as its economy slows. ‘Growth below the authorities’ official targets could again spook global financial markets,’ he added.
The comments came as stock markets around the world slammed into reverse following a 7pc slump on the CSI300 index in China that tracks the performance of 300 stocks traded on the Shanghai and Shenzhen stock exchanges.
China’s currency, the renminbi, hit its lowest level in nearly five years as the Communist government in Beijing moved to devalue the currency to boost exports.
Elsewhere in Asia, the Nikkei closed down 3.1pc in Tokyo while the Hang Seng was down 2.7pc in Hong Kong.
In Europe, the FTSE 100 index plunged 2.4pc or 148.89 points to 6093.43 in London while the main benchmark in Frankfurt sank 4.3pc, Milan fell 3.2pc, Paris was down 2.5pc and Madrid lost 2.4pc.
On Wall Street, the Dow Jones Industrial Average fell more than 400 points or 2.5pc in early trading before closing down 276.09 points at 17,148.94.
Andre Bakhos, managing director at fund manager Janlyn Capital in New Jersey, said worries about China set off ‘violent New Year fireworks’ on the financial markets.
Mike van Dulken, head of research at online trading company Accendo Markets in London, said: ‘Equity markets have made a rather negative start to 2016, with China making an early appearance to remind us of global growth woes and foreign exchange wars, keeping the commodities space under pressure, while geopolitical tensions in the Middle East are adding to existing volatility in the price of oil.’
A string of reports from China, the United States and Europe showed factory output around the world remained subdued at the end of last year. A closely-watched index of manufacturing activity in China, the world’s second largest economy, slipped from 48.6 in November to 48.2 in December.
It was the tenth month in a row that the score has been below the crucial 50 level that separates growth from decline.
US factories fared no better, with the index of manufacturing activity in the world’s biggest economy also falling from 48.6 to 48.2. In Britain, the index dipped from 52.5 to 51.9, while the eurozone score ticked up from 52.8 to 53.2, as growth in the UK and Europe remained subdued. Obstfeld said ‘synchronised and sustainable global growth remained elusive’ last year.
China is thought to have racked up the slowest pace of economic growth for 25 years in 2015, with the rate of expansion slipping below Beijing’s 7pc target from 7.3pc in 2014. The IMF expects growth to slow again to 6.3pc this year.
Obstfeld said the impact of the slowdown in China has been more painful than expected with com- modity prices tumbling. Metals such as copper, zinc, lead and nickel fell again yesterday and oil reversed early gains. Gold was up as nervous investors looked for somewhere safe to park their cash.
Obstfeld said the world faces ‘an abundance of challenges’ including in emerging markets as interest rates rise in the US.
The Federal Reserve rose rates in the US for the first time in nearly a decade last month and Obstfeld said ‘it will be critical how the Fed managers subsequent increases during 2016’.