Greece fears hit stocks; IMF seen cutting growth outlook 'significantly'

Protesters march on April 9, 2015 with a banner, reading 'Write off the debt now,' during a small protest in Athens.
Louisa Gouliamaki | AFP| Getty Images
Protesters march on April 9, 2015 with a banner, reading 'Write off the debt now,' during a small protest in Athens.

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 MoreLet'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.

Yanis Varoufakis, Greece's finance minister.
Andrew Harrer | Bloomberg | Getty Images
Yanis Varoufakis, Greece's finance minister.

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. 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.

IMF: Greek negotiations are complex
IMF: Greek negotiations are complex   

Protests in Athens

Protests 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.

IMF: We expect to be paid on time
IMF: We expect to be paid on time   

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 ($7.7 billion) worth of aid remains locked up.

Read MoreWhat would a Greek default look like?

In the meantime, Greece faces multimillion-euro debt repayments. It also has to pay its own wages and pension bill this month, which analysts warned could see the country running out of money, defaulting on its debts and could even result in a dramatic exit from the euro zone.

Faber: 'Greece should default'
Faber: 'Greece should default'   

Diego Iscaro, senior economist at IHS Global Insight, said in a note Thursday that the risks of a Greek exit from the euro zone—or "Grexit"—were "rising by the day."

"Without the disbursement of official funds by early May, Greece will struggle to avoid a default," he said. "Although a default would not necessarily mean that Greece would leave the euro zone, it could precipitate a series of events that could leave the Syriza-led government with little option but to start printing its own currency."

Greece's fate, Iscaro said, could all depend on whether the ECB maintains faith in the Greek financial system.

"The key will be held by the position taken by the ECB: a withdrawal of its support to the Greek banking sector resulting from a sovereign default could be the trigger that decides Greece's fate in the euro zone," he added.

Eternal optimists?

Greek Prime Minister, Alexis Tsipras, told Reuters Thursday that he was "firmly optimistic" his government would reach an agreement with its creditors by the end of April, despite friction over issues such as pension, privatizations and labor reform.

Some officials, like German Finance Minister Wolfgang Schaeuble, remain skeptical the meeting on April 24 can yield results, however.

Read MoreBets are off on 'Grexit' as default fears grow

There is no love lost between Varoufakis, who is due to meet U.S. Treasury Secretary Jacob Lew on Friday, and Schaeuble, who have had tense encounters over Greece's bailout program in recent months.

"With no deal imminent and widespread scepticism that there ever will be, markets appear to be gearing up for when a Greek default happens, and not whether one happens," Michael Hewson, chief markets analysts at CMC Markets, said in a note Friday.

Hewson said Varoufakis had been clear that he would not sign up for another version of an "extend and pretend" bailout deal, which could see Greece clash once again with its euro zone partners.

"Unfortunately this determination by Greece is being met with an equal determination not to yield on the German side, with German Finance Minister Schaeuble suggesting they were welcome to find the money elsewhere if they wished, as the latest episode of the Greek rock meeting the German immovable object played out," he added.