The IMF cut its growth forecast for the 17-nation Euro zone by nearly half a percentage point to 1.6% in 2011 and even weaker conditions are seen for next year with growth of just 1.1%. Currently the single currency region is scarcely growing at a 0.25% annual rate.
The Fund’s strong message to European leaders was they should do whatever it takes to preserve confidence in national policies and the Euro, and it urged the European Central Bank to lower interest rates if risks to growth persisted.
Investors have questioned Europe's ability to come up with a convincing solution to its festering sovereign debt crisis, which has rattled confidence and roiled financial markets.
The IMF cut its forecast for global growth to 4% for 2011 and 2012, shaving projections for almost every region of the world and saying risks remained tilted to the downside. Just three months ago it had projected an expansion of 4.3% for 2011 and 4.5% for 2012.
Regarding the US, the IMF cautioned that hasty budget cuts could further weaken growth, and it said the US Federal Reserve should stand ready to ease monetary policy further. The Fed meets on Tuesday and Wednesday.
The IMF shaved its forecasts for US growth to 1.5% for 2011 and 1.8% for 2012, down from June projection of 2.5% and 2.7%, respectively.