Gear up for China growth slowdown, IMF tells emerging nations

While agreeing that the impact of China's economy slowdown is beyond borders, International Monetary Fund (IMF) asked emerging economies to withstand the crisis. The global growth will be moderate and lower than the forecast made by IMF two months ago. 

Other emerging economies including Indonesia need to be vigilant on global financial conditions, alerts Christine Lagarde, Managing Director, IMF.

After achieving a growth rate of over 10 percent for the past three decades, China is entering a new growth model i.e. slow growth. Ironically, this slower growth is mixed with stock market crash and unexpected devaluation of Chinese currency Yuan.

"Chinese economy is adjusting to a new growth model i.e. growth is slowing down, but not sharply and not unexpectedly," said Lagarde in Indonesia on Tuesday.

Lagarde also advised emerging economies to withstand the low growth coupled with high debt and high rate of unemployment. She sees a major role of policy makers in addressing debt and unemployment issues.

The drop in commodities and oil prices is taking a toll on emerging market economies such as Russia and Brazil. Adding to this, stronger US dollar is also further worsened the capital outflows of Asian economies including China, South Korea, Malaysia, Thailand, etc. 

China is a major consumer of commodities and oil. The steep drop in buying by China is impacting the commodities and oil markets globally. 

The average growth rate of emerging markets is likely to ease to four percent from the 4.5 percent in fourth quarter of 2014. The lowest of growth rate recorded was 3.9 percent in 2009 first quarter. 

The slowdown unexpectedly surfaced at a time when Asia was poised to drive the global growth. But, "the pace is turning out slower than expected," said Lagarde. 

This is the time for automobile industry to brace for Chinese economy slowdown. Auto majors such as BMW, Volkswagen and Peugeot are suffering from the slowing sales volume. Ford singled out the Chinese economy as a major risk.

Riding on the recent high growth in China's economy, auto sales registered an encouraging growth of 24 percent annually during 2005 and 2011 and this made the dragon country as the world's largest car market leaving the US behind it. With China restricting number of new registrations in Beijing, Shenzhen, automobile companies are looking towards tier-II and tier-III cities.

On the other hand, investors prefer to withdraw their investments following the concerns about slow growth. As investors are moving backwards, money started pouring out of emerging markets. The outflow of money is faster and longer than it was in during the crisis days of 2008 and 2009, according to data by NN Investment Partners, an asset managing firm in Netherlands.

It's estimated that $1 trillion capital was withdrawn since July 2014. This is twice the amount withdrawn during first nine months to March 2009.