IMF Sees Increased Risks

Source: What Is That Whistling Sound

IMF warns of increased risks

The fund said it was concerned about the continuing Greek debt crisis, the arguments over US deficit plans and the need to curb growth in Asia.

But it said it expected global growth to remain on track, though it lowered its forecasts for the US and UK.

The IMF predicted that the world economy would grow at a rate of 4.3% in 2011 and 4.5% in 2012.

The fund called for greater political leadership in dealing with the eurozone debt crisis and the budget crisis in the US.

“You cannot afford to have a world economy where these important decisions are postponed, because you’re really playing with fire,” said Jose Vinals, director of the IMF monetary and capital markets department.

“I don’t think there is a question over whether Greece is going to default, it is just a question of whether it is an orderly or disorderly one,” says George Magnus, senior economic adviser at UBS.

The IMF warned that if Greece was unable to pay its debts, other countries such as Spain or Portugal may also be affected.

European banks which lent money to these countries would in turn lose out.

“In a serious market event, a shock could be transmitted beyond the eurozone”, warned the IMF’s financial stability report.

“Too much capital may be moving too quickly to emerging markets,” the IMF warned, pointing to higher inflation in some countries.

Property prices in China have also risen sharply posing the risk of a sharp downturn.

The three IMF reports highlight the uncertainty over the economic outlook

UBS’s Mr Magnus said: “The standard [IMF] economic forecast is based on all sorts of assumptions, but that is the point. We are being treated to a succession of random and extreme events, which are difficult to predict.”

Chart courtesy of the BBC:

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All that is required to set off the fires of deflation is the right spark.

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