Global growth IMF chief

The world’s economy will grow next year but the pace will be ‘disappointing and uneven’ the head of the International Monetary Fund says.

Writing in German news magazine Handelsblatt on Wednesday, Christine Lagarde says the world’s economy will be held back by U.S. interest rate hikes and slowing growth in China next year. But overall, the international financial body still thinks the economy will grow by about 3.6 per cent.

Global growth IMF chief

Global growth IMF chief

China’s slowdown from its torrid recent pace is wreaking havoc in commodity markets and hurting countries that rely heavily on natural resources, such as Canada. And the financial sector in many countries still has weaknesses and financial risks are rising in emerging markets, Lagarde said.

“All of that means global growth will be disappointing and uneven in 2016,” Lagarde wrote, adding that low productivity and an aging population will also slow growth.

Earlier this month, the U.S. central bank hiked its benchmark interest rate for the first time in nine years, a sign the Fed would slowly begin to unwind its unprecedented stimulus policy and get borrowing rates closer to their long term trend line.

Lagarde says a return to normalcy from the Fed is theoretically “necessary and healthy” over the long term but it needs to be carried out as efficiently and smoothly as possible.

There are “potential spillover effects”, with the prospect of increasing interest rates there already having contributed to higher financing costs for some borrowers, including in emerging and developing markets, Lagarde said.