BBC News | Thursday, 8 July 2010 | 06:28 GMT
The International Monetary Fund (IMF) has raised its forecast for global economic growth this year, from 4% to 4.5%. It said the world economy grew strongly in the first part of this year, mainly due to robust growth in Asia. Developed economies maintained a modest but steady recovery in the same period. But it warned risks had increased and there had been a setback in progress towards financial stability.
Concerns over the sustainability of government finances in the developed world, especially Greece and others in Europe, were the major threat to global recovery the agency argued. It said governments should focus on improving their finances, but warned them not to make cutbacks too rapidly. In recent weeks, a number of governments have introduced austerity measures to cut deficit levels.
The IMF said that European banks in particular were being affected by the concerns about government debt and so were less willing to lend to each other. Less credit available to the wider economy could undermine the recovery, it argued. Although contagion to other regions of the world was likely to be limited, there was a risk that Europe’s troubles could have a more substantial impact on global economic growth, it said.