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Greece fears hit stocks; IMF cuts growth outlook

The IMF estimated on Tuesday that Greece's economy would grow by 2.5 percent this year and 3.7 percent in 2016 — forecasts that bemused some analysts aware of the country's hefty debt burden and deadlocked talk with international creditors.

April 18, 2015 / 17:38 IST
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Greece growth projections will need to be "significantly" revised down, the European head of the International Monetary Fund (IMF) told CNBC on Friday, as fears of a default weighed on European and U.S. stock and bond markets.The IMF estimated on Tuesday that Greece's economy would grow by 2.5 percent this year and 3.7 percent in 2016 — forecasts that bemused some analysts aware of the country's hefty debt burden and deadlocked talk with international creditors.Read More: Let's face reality, Greece is bankrupt: Marc Faber

On Friday, Poul Thomsen, director of the IMF's European department, admitted the forecasts were unrealistic."Our growth projection for this year will clearly have to be revised down significantly because of the current turmoil, because of the delay in completing the review. So once again, growth will under perform," Thomsen told CNBC from the IMF's annual Spring Meeting in Washington D.C.Stocks and bonds were hit across Europe and in the U.S. on Friday, with Greece fears factoring in the slump. The country is seen as increasingly likely to default on its debt obligations, as negotiations with its international bailout supervisors have failed to succeed in bringing about a further tranche of aid. Greece's finance minister, Yanis Varoufakis, is currently in meetings with U.S. and IMF officials in Washington that could determine the country's economic future. The IMF is Greece's key creditor. Another important meeting will take place on April 24, when euro zone finance ministers will meet to discuss Greece making economic and political reforms in return for more aid.The Athens Composite index closed around 3 percent lower on Friday and the pan-European FTSEurofirst 300 ended provisionally lower by 1.7 percent. U.S. stocks indexes also traded well over 1 percent lower.Greek 10-year bond yields rose above 12.9 percent on Friday at one stage, while yields of German Bunds — seen as a "safe-haven" asset in times of uncertainty — accelerated declines to trade just above zero percent on Friday at one stage.Thomsen, who is in charge of the IMF's loan programs to Greece and Portugal, told CNBC that the situation with Athens was "complex" as the new leftwing government was insistent on doing things "differently" to their predecessors."I don't think there is any loss of patience in the negotiations but it is a complex situation, let me explain. The Greek population wants to do things differently, they have elected a government that wants to do things differently, we have worked to accept that.

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Absolutely there are always different ways of achieving a program's objective, so we are engaged in a discussion of trying to do it quite differently," he said.

Protests in AthensProtests broke out in Athens late on Thursday, with scuffles between various protesters and riot police coinciding with Varoufakis's visit to the U.S.Despite the parlous state of Greece's finances, Varoufakis sounded a defiant note Thursday, saying Greece would not just sign up for reforms and austerity measures—as advocated by lenders in Greece's two international bailouts—because this would not solve its economic problems."We've tried that medicine but it hasn't worked," he said at a seminar at the Brookings Institution on the sidelines of the IMF's spring meeting in Washington."We will compromise, we will compromise and we will compromise in order to come to a speedy agreement. But we are not going to be compromised."It comes amid speculation that Greece could ask the IMF to delay and reschedule debt repayments it has to make in the next few weeks and months.However, IMF Managing Director Christine Lagarde ruled out giving it more time on Thursday—a message that was reiterated by Thomsen on Thursday.Grexit risks rising 'by the day'Greece is running out of cash and options, making Varoufakis' stance more risky. The bodies overseeing the country's bailout — the European Central Bank (ECB), IMF and European Commission—have not yet released that last tranche of aid.The group — known as the Troika — said the money will only be released once Greece has presented a concrete reform plan, which is has yet to do, meaning that 7.2 billion euros (USD 7.7 billion) worth of aid remains locked up.Read More: What would a Greek default look like?