World Economy

IMF's Lagarde: More volatility likely for emerging markets

Lagarde: Global recovery slowing
Lagarde: Difficult juncture in global economy
Lagarde: Emerging markets major role globally

The head of the International Monetary Fund says there is reason to be concerned about the global economy.

In prepared remarks for a Wednesday speech, IMF Managing Director Christine Lagarde said that her organization sees troubling signs in the world's finances, and that it is unclear if the current situation is cyclical or if it represents a fundamental downturn.

"The simple answer is that there is no simple answer. Certainly, we are at a difficult and complex juncture," Lagarde said, explaining she is worried about recent global affairs — and international economics are similarly distressing.

Christine Lagarde
Yuri Gripas | Reuters

"On the economic front, there is also reason to be concerned. The prospect of rising interest rates in the United States and China's slowdown are contributing to uncertainty and higher market volatility," she said. "There has been a sharp deceleration in the growth of global trade. And the rapid drop in commodity prices is posing problems for resource-based economies."

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Lagarde spoke with CNBC's "Squawk Alley" after her speech, reiterating that "there is a recovery, don't get me wrong, but it is definitely slowing down."

She said global growth will likely be weaker this year than last, and she only expects a modest acceleration in 2016. While advanced economies are seeing a "modest pickup," Lagarde said emerging economies will likely see their fifth consecutive year of declining rates of growth.

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"If we put all this together, we see global growth that is disappointing and uneven. In addition, medium-term growth prospects have become weaker," she said. "The 'new mediocre' of which I warned exactly a year ago — the risk of low growth for a long time — looms closer."

On China, Lagarde said she sees Asia's largest economy as undergoing a fundamental and welcome transformation. The IMF head warned that this sort of transition can create "spillover effects" in trade, exchange rates, asset markets and capital flows.

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China will likely reduce its appetite for commodities as its economy slows and the country invests less overall, Lagarde explained in her speech. "This will contribute to what could be a prolonged period of low commodity prices — a change that will need to be managed by policymakers, particularly in the large commodity exporters," she said.

In fact, Lagarde told CNBC that she expects emerging markets will likely see more volatility ahead.

As for the Federal Reserve, Lagarde said she was encouraged by how the U.S. central bank is going about its decision-making on when to raise rates.

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"We are very pleased to see the fact that the decision will be data dependent — we think that that's very, very good. We don't see much movement on the inflation front nor on the wages front, so we are also very interested to see that the international scene is also perceived as likely to have domestic effects and may have been factored into the thinking," she said, adding that her organization does not see an economy ready for a rate hike.

The World Trade Organization announced that it had cut its forecasts for global goods trade earlier Wednesday after quarterly growth turned negative, with trade shrinking by an average of 0.7 percent in the first two quarters of this year. The WTO said it sees world trade growth of 2.8 percent this year and 3.9 percent in 2016, revised down from the forecasts it made in April of 3.3 percent and 4.0 percent, respectively.

—Reuters contributed to this report.