THE International Monetary Fund (IMF) yesterday cut its forecast for global growth to 4 percent and warned of “severe repercussions” to the global economy unless euro zone nations strengthened their banking system and the United States got its fiscal affairs in order.

The IMF’s flagship report, the World Economic Outlook, warned that the U.S. and European economies faced recession and a “lost decade” of growth, in a kind of replay of Japan in the 1990s, unless the governments around the world took concerted actions to revamp economic policies.

For the United States, that means less dependence on debt, for the euro zone, a resolution of the sovereign-debt crisis; for China, increased reliance on domestic demand; and for Brazil, cooling an overheating economy.

The IMF’s gloomy forecast follows similar analyses by private-sector economists. But the fund’s analysis takes on an outsized role in economic policy making because of its function as an information clearing house for its 187 member nations, and because the IMF uses its forecasts to press its members to make changes.

The forecasts will play an important role in the discussions later this week of central bankers and finance ministers, who are coming to Washington for the IMF’s annual meeting.

The Group of 20 (G20) developing and industrialized nations, which act as a kind of board of directors of the global economy, also are conferring on the sidelines of the meeting.

It’s unlikely that either the IMF or the G20 will manage to produce a cooperative plan of action this weekend, given the sharp political discord within the United States and Europe. But the discussions can help prod nations to reach compromises and help set the agenda for a meeting of the G20 leaders in France in early November.

“Strong policies are urgently needed to improve the outlook and reduce the risks,” said IMF chief economist Olivier Blanchard. “Policymakers don’t have the luxury of time,” he said.

Overall, the IMF reduced its estimate of global growth by 0.3 percentage points since its last estimate in June. For 2012, the IMF forecast world growth would remain steady at 4 percent, a 0.5-percentage-point reduction from its June estimate.

Wealthy nations are especially struggling, said the IMF, which forecast the United States to grow at 1.5 percent this year, only slightly less than the euro zone at 1.6 percent. The IMF expects Japan’s economy to contract by 0.5 percent this year.

Growth in the developing countries is likely to be much stronger, though still not as strong as it was in 2010. China is expected to grow 9.5 percent this year, compared with 10.3 percent in 2010, the IMF said, while India’s growth is forecast to slow to 7.8 percent this year from 10.1 percent in 2010.

European policymakers must ratify a July 21 agreement that strengthens its 500-billion-euro (US$685 billion) bailout facilities. Authorities there also need to ensure fragile banks boost their capital buffers to protect against the elevated risk of sovereign debt failures.

If weak banks can’t raise enough capital in the private banks, the IMF said authorities should inject public or bailout cash into them. Otherwise, they should “be restructured or closed.”

To tide Europe over until sufficient policy bulwarks are built, its central bank “must continue to intervene strongly to maintain orderly conditions in sovereign debt markets,” IMF staff said. Also, if the economic malaise continues, the European Central Bank should cut interest rates. (SD-Agencies)