Skip to main content

IMF: Risks to global stability rise

By Kevin Voigt, CNN
October 10, 2012 -- Updated 0459 GMT (1259 HKT)
STORY HIGHLIGHTS
  • IMF: Mounting risks, eurozone worries are fueling financial instability
  • Governments need to do more to raise market confidence or risk a banking credit crunch
  • IMF economist: U.S. fiscal cliff and eurozone crisis greatest risks to the world economy
  • The IMF downgraded its 2012 global growth forecast to 3.3% earlier this week

(CNN) -- Falling market confidence has led to money fleeing peripheral eurozone nations such as Spain and mounting pressure on banks, raising the risks of a credit crunch and recession, the International Monetary Fund said in a report released Wednesday at meetings in Tokyo.

While moves in September by the European Central Bank to buy government bonds have helped stabilize markets, governments need more action to return market confidence, according to the IMF's Global Financial Stability Report. "If they do not, the result will be an acceleration in deleveraging, which raises the risk of a credit crunch as banks make fewer loans, and an ensuing economic recession," the IMF said.

The report comes after the chief economist for the IMF told CNN Tuesday that there are two great threats to the global economy: the "fiscal cliff" in the United States and the eurozone debt crisis.

"I think a (global) recession is not very likely except for two possible tail risks: The first one is a possible fiscal cliff in the U.S. If for some reason we actually jump all the way down the cliff, this would be an enormous fiscal contraction," said Olivier Blanchard, IMF economist. "It would be a U.S. recession, and God knows what would happen to the world."

Angry protestors greet Merkel in Greece
Merkel: Greek 'progress has been made'

The U.S. fiscal cliff refers to $7 trillion worth of tax increases and spending cuts that start taking effect in January.

CNNMoney Explainer: What is the fiscal cliff?

"The other which has a slightly higher probability is if the Europeans don't quite get their act together," Blanchard said. "They have promised a number of things, they have started putting in place a number of things, but whether they implement it is not absolutely sure."

Markets were buoyed last month after European Central Bank president Mario Draghi outlined the details of a plan to buy euro area government bonds, reiterating his pledge to do "whatever it takes" to preserve the euro.

The move was aimed mainly at Spain and Italy, which struggled with unsustainable borrowing costs earlier this year. So far, neither Madrid nor Rome has officially requested support from the bailout funds.

Greece, Portugal and Ireland -- much smaller eurozone economies -- have received aid to help offset crippling borrowing costs due to ballooning sovereign debt in the wake of the 2008-2009 financial crisis.

The IMF on Monday revised its global growth prediction to 3.3% this year, down from 0.2% in July, saying the global recovery "has suffered new setbacks, and uncertainty weigh heavily on the outlook." The IMF also revised its predicted growth to 3.6% in 2012, down from its previous forecast of 3.9%.

CNN's Andrew Stevens and CNNMoney's Charles Riley and Ben Rooney contributed to the report

ADVERTISEMENT
Part of complete coverage on
August 27, 2013 -- Updated 1943 GMT (0343 HKT)
German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
September 4, 2013 -- Updated 1528 GMT (2328 HKT)
The G20 is held in Russia but, amid disagreements over Syria, can anything be done? John Defterios investigates.
July 10, 2013 -- Updated 1502 GMT (2302 HKT)
Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
June 7, 2013 -- Updated 1750 GMT (0150 HKT)
The euro club has suffered major shockwaves but its newest member has emerged as an economic star. What;s behind Estonia's success?
May 29, 2013 -- Updated 1323 GMT (2123 HKT)
The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
May 14, 2013 -- Updated 1326 GMT (2126 HKT)
The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.
The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
May 27, 2013 -- Updated 0256 GMT (1056 HKT)
Europe's competitiveness is threatened as manufacturing companies scrambling to find enough skilled engineers.
July 10, 2013 -- Updated 1502 GMT (2302 HKT)
Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
May 2, 2013 -- Updated 1044 GMT (1844 HKT)
As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
April 26, 2013 -- Updated 1210 GMT (2010 HKT)
As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
April 25, 2013 -- Updated 1656 GMT (0056 HKT)
Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
March 25, 2013 -- Updated 1355 GMT (2155 HKT)
The financial uncertainty in Cyprus is generating images of long lines at ATM machines and anti-European Union protests.
March 25, 2013 -- Updated 1815 GMT (0215 HKT)
Cyprus will "step up efforts in areas of fiscal consolidation." Where have we heard that before? Oh yes. Greece.
March 23, 2013 -- Updated 0139 GMT (0939 HKT)
The Cyprus debt crisis is being felt by the banks but also by the people who work at them. Nick Paton Walsh reports.
March 22, 2013 -- Updated 0010 GMT (0810 HKT)
CNN's Nick Paton Walsh reports on a Russian hotel maid caught up in Cyprus' financial crisis.
March 18, 2013 -- Updated 1608 GMT (0008 HKT)
Never underestimate the capacity of the Eurozone to shoot itself in both feet, says CNN's Richard Quest.
February 21, 2013 -- Updated 1603 GMT (0003 HKT)
Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.
ADVERTISEMENT