IMF warns of increased risks to the world economy

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 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.

The IMF's latest forecasts 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 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.

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.

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