The International Monetary Fund cut its forecast for global growth and warned that the European debt crisis threatens to the world economy.

“The epicenter of the danger is Europe but the rest of the world is increasingly affected,” Olivier Blanchard, the fund’s chief economist, said today at a news conference in Washington. “There’s an even greater danger, namely that the European crisis intensifies. In this case the world could be plunged into another recession.”

The fund, in an update of its World Economic Outlook report, lowered its estimate for global growth this year to 3.3 percent from a September forecast of 4 percent. The expansion next year will be 3.9 percent, down from 4.5 percent. The euro area may enter a “mild recession” in 2012 as it shrinks 0.5 percent. The U.S. outlook was unchanged at 1.8 percent growth.

The forecasts hinge on increased efforts in the 17-country euro area to fight the financial turmoil. The IMF called on European policy makers to increase the size of the region’s rescue fund and for the European Central Bank to continue its support of the region to limit contagion to other countries.

Stocks fell as talks over Greek debt restructuring reached a stalemate. The S&P 500 dropped 0.2 percent to 1,313.20 at 2:08 p.m. New York time, after declining as much as 0.8 percent earlier.

‘Noticeably Deteriorated’

“The near-term outlook has noticeably deteriorated,” the
IMF said in the report.


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