High levels of national debt and a still-shaky financial sector threaten to derail the global economic recovery, the IMF warned on Friday.
Amid concerns about the health of European banks and of public finances in Europe, Japan and the US, the IMF warned that a stronger-than-expected recovery would now begin to slow.
“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 said. “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 warned the recovery remained “fragile” in advanced economies, as private firms struggle to pick up the slack left by retreating government stimulus spending.
“In emerging economies, the growth outlook remains strong, although activity is moderating to more sustainable levels,” it said.
Chief 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,” it said.
The Washington-based body warned of a funding bottleneck 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 US$400 billion ... In refinancing this debt, these countries will face competition from the significant rollover needs of both other advanced economies,” it said.
That funding need is expected to reach about US$4 trillion.
Meanwhile, the IMF on Friday announced it would provide Greece with a further 2.57 billion euros (US$3.26 billion), the second installment of an economic rescue package.
The payment is part of a 110 billion euro IMF-EU package to help the country overcome a crushing debt crisis and backstop the finances of other European countries that are teetering.
Greece is eligible for up to 30 billion euros of the fund. Athens will have received 8.3 billion euros once the latest payment is completed.
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