The risks to a robust global recovery have ‘risen significantly’ as many governments struggle with debt, a leading official from the International Monetary Fund has warned.

Published: 9:24AM BST 09 Jun 2010

“After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,” Naoyuki Shinohara, the IMF’s deputy managing director, said in Singapore on Wednesday. “The global outlook remains unusually uncertain and downside risks have risen significantly.”

Countries across Europe are under pressure to tackle their deficits that were deepened by the financial crisis and governments own response to it. Some economists fear that moves by countries ranging from Britain to Spain to rein in public spending at the same time will set back a global recovery.

Stock markets have declined in the past couple of months as Europe’s debt crisis and the prospect of higher interest rates in the faster-growing Asian economies cast a shadow over the recovery.

“Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand,” Mr Shinohara said. “In the event of spillovers from Europe, there is ample room in most Asian economies to pause the withdrawal of fiscal stimulus.”

Mr Shinohara, the former top currency official in Japan, added that “a key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.”