IMF concern for Britain and economic recovery

Posted by Paul Anderson Riley in Credit Crunch on 17 April 2015 - Paul is a Credit Analyst at checkmyfile

The International Monetary Fund (IMF) is concerned that Britain’s reliance on credit cards and loans could stunt economic growth and put the past five years of recovery in jeopardy. The UK is currently on a warning list of countries that would be vulnerable to an economic crunch and the UK now has one of the highest household debt figures in the developed world.

This message has come as part of the IMF’s rising concern that within the last year more countries have become at risk to financial shocks. The IMF’s twice yearly stability report has highlighted that global stability has worsened and Europe currently faces high debt levels.

Whilst other countries have seen bigger reductions in household debt since 2008, the figures for the UK have still remained high and this is why specific concern has been raise for the UK. Despite this concern the IMF confirmed that Britain has reduced household debt relative to national income from 96% to 87%.

The IMF state that, “This continuing high debt calls for an additional response to address the crisis legacies and unshackle economic potential. Gross corporate debt in France, Italy, Portugal and Spain is expected to remain above or near 70% of GDP by 2020, and gross household debt in Portugal and the United Kingdom is projected to remain high compared with that of other major advanced economies”.

A rise of household debt to pre-crisis level has been forecasted by the Office for Budget Responsibility within the life of the next parliament. José Viñals, IMF counsellor, has commented that non-performing loans stand at over €900bn and says that policymakers need to “encourage banks to deal with this stock of bad loans and implement more efficient legal and institutional frameworks to speed up this process”.

Vinals says that most concern is for the countries that are developing quickly, as they are becoming more vulnerable to volatile financial markets. Global change in currencies, commodities and interest rates could push countries that are already marginalised further to edge of collapse.

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