In a mid-year health check of the world economy, the Washington-based institution shaved its 2013 forecast for global growth to 3.9% from the 4.1% it projected in April, trimming projections for most advanced and emerging economies to 5.6% in 2012 and 5.9% in 2013.
Both figures are 0.1 of a percentage point lower than in April. The IMF sees advanced economies growing only 1.4% this year and 1.9% in 2013. The IMF left its 2012 forecast unchanged at 3.5%.
"Downside risks to this weaker global outlook continue to loom large," the IMF said in a statement. "The most immediate risk is still that delayed or insufficient policy action will further escalate the euro area crisis."
The fund cut its 2013 growth forecast for the crisis-hit eurozone to 0.7%, while maintaining its projection of a 0.3% contraction this year. It said it now believes Spain's economy will shrink in 2012 and 2013.
The fund praised crisis-fighting measures adopted by European leaders at a summit in June as "steps in the right direction," but called for more fiscal and banking integration.
It urged the creation of a pan-European deposit insurance guarantee programme and a mechanism to resolve failing banks, and called on the European Central Bank to provide ample liquidity to support banks under "sufficiently lenient conditions."
It made clear, however, that Europe was not the only risk.
Clouds over Washington
The IMF, which trimmed its US forecasts slightly, said concerns were rising over a political battle brewing in Washington over how to avoid painful automatic spending cuts and tax increases at the start of next year.
The United States faces a "fiscal cliff" with the scheduled expiration of Bush-era tax cuts and $1.2 trillion in automatic spending reductions - enough budget tightening to knock the still-weak US economy back into recession.
Washington is also expected to run into the statutory $16.4 trillion cap on its debt before the end of the year, raising the prospect of a default absent congressional action to raise it.
While financial markets believe Congress and the White House will find a way to avoid a fiscal train wreck, the IMF warned of the "potential for a significant adverse market reaction" if that consensus view began to falter.
Central banks in China, the eurozone and Britain have all eased monetary policy in recent weeks to support growth. The US Federal Reserve has said it is poised to do more if needed.
The IMF said the ECB had room to ease policy further and said officials in emerging economies should stand ready to cope with a drop in trade and increased volatility in capital flows.
Emerging economies
The IMF said emerging market nations, long a global bright spot, were being dragged down by the economic turmoil in Europe. It said a drop in exports in these countries would combine with earlier policies meant to prevent overheating and slow growth more sharply than hoped.
While emerging economies, such as China, may no longer be growing at a rapid 10% annually, growth in these countries was likely to remain strong.
"It is really case by case but in general we think [emerging economies] will be able to increase demand and grow at fairly high rates," IMF Chief Economist Olivier Blanchard told a news conference.
"The question here is whether these countries will be able to handle this slowdown in demand? Here we think they really have the policy space to do it," he said, "In terms of sustaining high growth, we think they can do it."
