Lagarde’s comments in Indonesia come as financial markets gyrate over concerns about the health of China’s economy — the world’s second-largest — and its effect emerging economies and their currencies.
World stock markets plunged further this week as more evidence emerged of China’s economic slowdown, triggering heavy sell-offs from Tokyo to New York and spurring cuts to global growth forecasts.
Lagarde, in Jakarta for a two-day visit, said the recent turmoil highlighted the “extraordinary gains” made by Asian economies but warned further volatility was on the horizon.
“Now the situation is changing yet again, and we are all feeling the impact of China’s rebalancing and moving to a revised business model,” she told a conference.
“What has been demonstrated in the last few weeks is how much Asia is at the core of global economy, and how much disruptions occurring in one market in Asia can actually spill over to the rest of the world.”
Slower growth in major economies like China and Japan, lower commodity prices and the prospect of higher interest rates in the United States would continue to weigh on regional markets, Lagarde added.
Despite external pressures and the slower pace of expansion in Asia, the IMF chief said “this whole region, in the world, is doing pretty well”, and would continue to be a key source of global growth.
Lagarde this week added her voice to private sector economists that have already cut their world growth estimates, conceding growth would likely be weaker than the 3.3 percent estimate the IMF made just two months ago.