The International Monetary Fund is reported to have cut its 2008 world growth forecast for a third time, saying there is a 25% chance of a world recession.
In a document quoted by financial news service Bloomberg, the IMF said the US was in its worst financial crisis since the Great Depression.
The world economy will expand by 3.7% in 2008, the slowest pace since 2002, according to a document obtained by Bloomberg. In January the IMF projected growth of 4.1%.
Central banks will need to conduct policy 'as flexibly' as the circumstances warrant, the IMF said, adding that the European Central Bank has room to lower rates.
'The financial shock that originated in the US sub-prime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,' the document said.
'The global expansion is losing momentum in the face of what has become the largest financial crisis in the US since the Great Depression.'
The IMF gave a 25% chance that global growth will drop to 3% or less in 2008 and 2009, a pace the fund described as equivalent to a world recession.
