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The International Monetary Fund has warned that the risks facing the world
economy have increased.
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 the IMF said it expected global growth to remain on track, though it
lowered its forecast for the UK.
The world economy grew at an annualised rate of 4.3% in the first quarter of
2011, it said.
The fund's comments came as it updated its assessments of financial stability,
country finances and the global economy. Its last review was in April.
Greek debt
The fund warned that the continuing Greek debt crisis could destabilise the
global financial system.
Many analysts believe Greece will not be able to pay back all the money it has
borrowed.
"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 advisor 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.
Start Quote
If anything it's even worse than we were a few months ago
End Quote Gilles Moec Deutsche Bank
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 euro zone",
warned the IMF financial stability report.
It called on the leaders of European governments to implement long-term
policies to prevent further problems.
At the same time, the IMF warned that European banks had not yet built up
sufficient capital to withstand a further economic shock.
"Markets may become disorderly if political developments derail momentum on
fiscal consolidation and financial repair," the fund warned.
US and Japan
It also highlighted debt problems outside the eurozone.
Ben Bernanke speaking Chairman of the US Federal Reserve, Ben Bernanke has
called on US lawmakers to raise the debt ceiling
Japan is struggling to cut its spending in the aftermath of the earthquake and
tsunami.
In the US, the fund highlighted the "political stalemate" over how to tackle
the deficit.
The fund lowered its growth forecasts for the US for the next two years by 0.3%
in 2011 and 0.2% in 2012 and highlighted renewed weakness in the housing market
as a risk.
Economic growth
In the so-called "core" European countries, such as France and Germany, growth
has exceeded expectations.
This may help to mitigate some of the problems faced by other countries in the
eurozone.
Some economists hope it may also make it easier to solve the region's debt
problems.
A man looks at some model flats There are worries the Chinese property market
may be over-heating
In the UK, the fund downgraded its growth forecast for 2011 to 1.5% from 1.7%.
However, it endorsed efforts to cut the deficit describing the plans as "on
track".
Outside Europe, the fund said it expected economic growth in developing
countries to remain strong.
This, in turn, presents a risk of overheating - where economies grow too fast
leading to a rapid contraction later.
"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."