Stock sell-off unlikely to dent growth, says IMF

MADRID - AS JITTERS lingered in global equity markets, the International Monetary Fund (IMF) said Tuesday's stock selldown was a correction rather than a prolonged shift in markets.

It brushed off concerns that the correction could dent economic growth.

'World growth is clear this year and at a healthy rate of around 5 per cent,' IMF managing director Rodrigo Rato said on Thursday on the sidelines of a conference in Madrid. 'We believe that growth right now is sustained.'

'The correction we saw in the last two days was not so much to do with fundamentals but appraisals of risks, and it shows once again that we live in a very benign scenario,' he added.

Still, Mr Rato warned investors that they should not lower their guard and pointed to Tuesday's event as the second in less than a year. 'Downside risks do exist and risk appraisal can change as we saw last spring. Volatility can be very quick and very spread in geographical terms,' he added.

In Washington, IMF spokesman Masood Ahmed gave a similar message. 'We still see a soft landing as the most likely scenario of global growth this year,' he said at a regular press conference.

'We see solid growth across the major advanced economies and continued strong growth across emerging markets and developing countries.' He said the IMF did not think the fall in stock markets was triggered by a single event.

The slide began with a 9 per cent drop in Chinese shares on Tuesday and soon spread around the globe, sparking the biggest one-day fall in United States stocks since Sept 11, 2001. This pushed the yen to a 10-week high against the US dollar, while lifting bond prices as investors fled riskier assets.

Over the past year, the IMF has warned that markets would rise and fall as long as investors worried about inflation, future interest rate rises and widening global economic imbalances.

Just hours before the markets started unravelling, Mr Rato told Harvard Business School graduates in Washington that the growth of the yen carry trade, driven by low Japanese interest rates, was a new danger that could quickly unwind.

He said carry trades reflected the increase in globalisation of financial markets and was evident in capital flows into countries such as Brazil and Turkey, and also in the growth of yen-denominated mortgages in countries ranging from South Korea to Latvia.

REUTERS