The International Monetary Fund (IMF) has  identified Greek financial crisis and the Chinese stock market sell-off 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, yesterday.
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 reemergence 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 US economy’s first-quarter stumble as the reason for the action.