As 2015 ended, the International Monetary Fund’s managing director, Christine Lagarde, lowered her forecast for 2016 in a guest column published by the German financial newspaper Handelsblatt.

Earlier, she had said at a Brookings Institution event that the downside risk for global economic growth is “greater than before.” Lagarde voiced concerns about emerging markets, including China, the rest of Asia, Russia and Brazil. She said their economies would continue to slow dramatically, which would push the world economy into its weakest expansion since the financial crisis. The IMF lowered 2016 growth predictions for the global economy to 3.6 percent.

The IMF expects deep headwinds in advanced economies generally, including weak productivity growth, lower investment, and aging populations. U.S. growth should be approximately 2.8 percent, the eurozone, 1.6 percent, and Japan, .6 percent.

The IMF also forecasts slower growth in emerging markets in 2016, at 4.6 percent. These areas account for half the world’s GDP and most of its growth.

Pessimism on the economy is not confined to the IMF. Various central bank executives fret that monetary stimulus programs have not been enough to boost global economic growth.

The big problems

These are some of the major issues confronting the world economy:

1. Money fleeing emerging markets. International Finance, an industry group, estimates this year will mark the first net exodus of capital from emerging markets in 27 years, with more than $1 trillion fleeing countries such as Brazil, Turkey and South Africa. The rise in U.S. interest rates and the continuing bullish outlook for the dollar could help attract some of that panic outflow of capital to America.

The capital outflow will hurt corporations in emerging markets, because many of these corporations relied upon foreign investments to fund their cash-flow deficits. Now, borrowing in dollars will cause these corporations to face rising real interest costs: they must repay their obligations in dollars, which have risen in value relative to their domestic currencies. Between 2004 and 2014, emerging-market corporate debt increased from $4 trillion to $18 trillion, almost three times the increase in the size of the world economy.

2. The decline in price of most commodities. This development reflects the slowdown in the real economy. Since 2014, oil prices have plummeted by two-thirds, dropping 35 percent in 2015 alone. Nickel has dropped by more than 40 percent, and zinc has fallen by 28 percent. The collapse in industrial commodity prices has caused the ratings agencies to warn that 50 percent of energy junk bonds could default, along with 72 percent of bonds in the metals, mining and steel industries.

3. China’s deceleration. Chinese economic growth has slowed to slightly more than 6 percent, primarily because of its heavy dependence upon expanding its trade with the developed world. The anemic growth in Europe and Japan has lowered Chinese exports.

The slowing of China’s economy and the plummet in commodity prices are symptomatic of the problems confronting the developing world, where countries over-invested, borrowed excessively and exhausted their ability to expand without major economic overhauls.

Brazil is another example of a developing country that faces significant headwinds. Many of its companies are struggling with heavy debt loads. The IMF now predicts that Brazil’s economy will shrink by 1 percent in 2016.

4. Modest growth in the U.S. and the Eurozone. The developed world, even though it is relatively strong, has not been able to offset the falling output in emerging markets.

A global wakeup call

The dramatic decline in worldwide stock market indices in the first day of trading in 2016 might have awakened us all and made us acutely aware of the IMF’s warnings.

As Maurice Obstfeld, the IMF’s new chief economist, said recently: “Six years after the world economy emerged from its broadest and deepest postwar recession, a return to robust and synchronized global expansion remains elusive.”

The IMF wanted the Federal Reserve to delay its rate increase, which it implemented in December, until sometime this year. It also wanted Europe to deal with its trillion dollars worth of bad loans, and emerging markets to overhaul their economies.

Maybe we all should have listened!

Originally published in the Sarasota Herald-Tribune