Greek crisis, China stocks are risks to global economy, says IMF

The International Monetary Fund (IMF) on Thursday identified Greek financial crisis and the Chinese stock market selloff as potential risks to the global economy.

“Disruptive asset price shifts and a further increase in financial market volatility remain an important downside risk,” the Washington-based crisis lender said in a quarterly revision of its World Economic Outlook.

Market fluctuations, including further strengthening in the U.S. dollar could set off rapid, destabilising swings in investment flows to developing and emerging economies,” the report said.

The IMF, which suspended bailout loans to Greece after Athens missed a 1.5 billion euro payment on June 30, said that recent events there have yet to produce `significant contagion’.

It said so far the European Central Bank should be able to manage any risks that arise.

“Nevertheless … some risks of a re-emergence of financial stress remain,” the IMF said.

In China, the Shanghai Composite Index has tumbled by around 30 per cent since its June 12 peak, though it is still up 60 per cent from a year ago.

The Chinese central bank has vowed to boost liquidity to the stock market while securities regulators had taken steps to discourage major shareholders from dumping stocks.

The instability has arisen as Chinese authorities – after years of urging from the IMF and Western governments – are steering the economy from heavy export-reliance to a more balanced strategy with more domestic consumption.

The IMF said `greater difficulties in China’s transition to a new growth model, as illustrated by the recent financial market turbulence,’ are another downside risk to the global economy.

In Ukraine, the Middle East and parts of Africa, ongoing conflicts risk “spillovers to economic activity,” the report warned.

The IMF pared back its 2015 forecast for growth in global gross domestic product from 3.5 per cent to 3.3 per cent, citing the U.S. economy’s first-quarter stumble as the reason for the action.

The world’s largest economy actually contracted at an annualised rate of 0.2 per cent, which was blamed on temporary factors including weather and port disruptions.

The U.S. growth is expected to have resumed in the second quarter, while the IMF cut its U.S. growth forecast for this year from 3.1 per cent to 2.5 per cent.

The Fund repeated its call for advanced economies with room to borrow to boost infrastructure spending.

“Efforts at implementing structural reforms remain urgent across advanced economies, both to tackle crisis legacies and to raise potential output,” the report said.

For the eurozone, the Fund stuck by its expectation of 1.5 per cent growth.

In spite of the Chinese stock market selloff, the IMF continued to predict 2015 growth of 6.8 per cent.

For emerging market and developing economies, the Fund trimmed its prediction by 0.1 percentage points to 4.2 per cent, reports dpa.