A renewed drop in housing prices could thwart the U.S. economic recovery in the short term while Washington's lack of a "credible, comprehensive" fiscal plan poses a major medium-term risk, a top IMF official said.
International Monetary Fund Deputy Managing Director Min Zhu also said Chinese growth could fall by up to 4 percentage points if the European crisis took a sharp turn for the worse. Zhu told policymakers that proactive fiscal measures could trim that impact down to 1 percentage point.
Zhu spoke to policymakers on Thursday. His remarks were released for publication on Friday.
Zhu was more upbeat at a news conference on Friday. He told reporters Chinese growth was expected to stay strong and inflation was seen falling to a "manageable" 3 percent to 3.5 percent in 2012 after peaking at 5.5 percent in the last year.
"Looking forward, we see China will have a (more) moderate but still strong around 8 percent GDP growth rate for the next few years," Zhu told a news conference at the conclusion of a seminar on macroprudential policies in the Uruguayan coastal resort city of Punta del Este.
The IMF officially forecasts Chinese growth of 8.2 percent this year, compared with overall global growth of 3.3 percent.
A "soft landing" for China's economy is encouraging for Latin America because it will translate into sustained demand for the region's commodities exports, including Uruguayan beef, Chilean copper and Brazilian iron-ore, said Nicolas Eyzaguirre, director of the IMF's Western Hemisphere Department.
Zhu said Latin American growth was slowing but he said this was good in South American economies subject to overheating pressures. The region faces significant downside risks, however, in the form of a possible drop in commodity prices and tighter credit conditions linked to Europe's banking woes.
He recommended bolstering fiscal policy buffers and strengthening credibility in the region, while also doing more to address the issue of "too-big-to-fail" local banks, perhaps by applying higher capital requirements.
Zhu reiterated the Fund's outlook for a mild recession in the euro zone in 2012, which it forecasts at -0.5 percent.
"It will be important for Europe to adjust its policy mix to provide stronger support for growth. With decreasing inflationary pressures, there is some scope for further easing of monetary policy," Zhu said. "Given persistent market tensions, the ECB should not hesitate to use unconventional monetary policies."
He praised the "fiscal compact" signed by most European countries that requires the adoption of specific fiscal rules at the national level. But he said, "this compact is silent on the sharing of fiscal risks across countries."
Zhu said policymakers face three main challenges currently: global financial deleveraging, large capital flows and excess global liquidity, which he said has surpassed excess levels seen in 2007.