IMF warns of global recovery risk

Financial institution says economy may not progress due to huge debt levels.

    The IMF warned that massive debt levels may hamper efforts at global economc recovery [EPA]

    The fiscal situation in many of the world's advanced economies remains "challenging", the International Monetary Fund (IMF) has warned, amid a continued struggle by the world's richest nations to control debt levels.

    The Washington-based financial institution also warned on Friday that massive debt threatens global recovery from the economic crisis.

    "Downside risks to the recovery have intensified. The combination of sovereign risk and a still weak financial sector in many advanced economies poses significant risks to the recovery," the IMF in a statement.

    "Global growth has been somewhat stronger than expected during the first half of 2010, but is projected to slow temporarily during the second half of 2010 and the first half of 2011."

    The fund also said the recovery remained "fragile" in advanced economies, as private firms struggle to pick up the slack left by retreating government stimulus spending.

    Funding bottleneck

    "In emerging economies, the growth outlook remains strong, although activity is moderating to more sustainable levels."

    The most concerning among the longer-term risks is the fiscal situation in the world's advanced economies.

    "Despite some improvements for 2010, the medium-term fiscal outlook in G20 advanced economies remains challenging."

    According to the IMF, a funding bottleneck may occur as European nations try to extend their borrowing by rolling over bonds.

    "Sovereign debt maturing in vulnerable euro area economies in the second half of 2010 and 2011 exceeds $400bn."

    "In refinancing this debt, these countries will face competition from the significant rollover needs of both other advanced economies."

    That funding need is expected to reach around $4 trillion.

    SOURCE: Agencies


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