Financial markets at risk from bubble, IMF warns

The global economic recovery is strong and accelerating but it faces threats from weak wage growth and overheating financial markets, the International Monetary Fund has warned.

Speaking in front of an audience in Hong Kong, according to telegraph report, David Lipton, a senior official at the world’s lender of last resort, praised China’s growth, noting that it accounted for a third of global expansion.

“The sun is shining on the global economy”, Lipton said, as the recovery goes from “strength to strength” and consumer demand grows.

His optimism came with substantial caveats, however.

Chief among Lipton’s warnings was that “the rapid appreciation of asset valuations” during the past year ought to “heighten our concern” about how susceptible to a crash some financial markets might be.

The World Bank raised similar concerns about overly high share price valuations last week – they have now reached levels not seen since the dotcom bubble in 2000 and the Wall Street Crash in 1929.

Rio Tinto brushes off woes to post record iron ore shipments

Other major worries were that rising political tensions might not only lead to greater protectionism in the global economy but also “overt security conflicts”.

The greatest risks to the longer term health of global prosperity, however, and “a cloud” hanging over growth prospects, are low wages and sluggish productivity. Richer and less developed nations needed to make significant changes to their economies in order to improve growth and living standards, the IMF chief warned.

China’s lending habits were criticised by Lipton for heightening the risk of a new debt crisis in less developed countries. “Chinese lending represents 25 to 30pc of GDP in some recipient countries,” he said, adding that the country needed to “tighten some of its lending practices”.

If the nation continued to lend to developing nations at its current pace, they would face unsustainable debt burdens he said.

Lipton added: “The global economy is in a late stage of the long and gradual recovery from the global financial crisis. With economic slack in advanced economies diminishing, it is not clear how long the good news will continue.”