WORLD OUTLOOK:THE WORLD economy will grow more slowly than anticipated both this year and next, according to new biannual forecasts from the International Monetary Fund.

In its World Economic Outlook report, titled Slowing growth, rising risks, the fund said further efforts by euro zone leaders are "urgently needed" to halt the deepening crisis in the single currency area. This should include interest rate cuts if risks to growth persist.

In the same report, the fund confirmed its downgrading of Ireland’s growth outlook, a result of the spillover effects from the wider euro zone crisis.

The fund attributed the slowdown in global growth in 2011 to both anticipated and unanticipated developments. Of the latter, a “more tenacious” crisis in Europe, a spike in oil prices earlier in the year and the earthquake and tsunami in Japan were significant.

Of the anticipated dampeners of growth, the report highlighted the withdrawal of government stimulus in many economies as budgetary consolidation plans begin to be implemented.

Although the fund expects full-year economic expansion in the advanced economies of 1.6 per cent this year (revised down from 2.2 per cent in June), its central forecast is for a modest acceleration in growth next year to 1.9 per cent. The euro zone is expected to grow by 1.6 and 1.1 per cent respectively in 2011 and 2012, while the British economy is expected to grow by 1.1 per cent this year and 1.6 per cent next.

Emerging markets will grow much more rapidly, at 6.4 per cent this year, with a marginal deceleration to 6.1 per cent foreseen for next year.

Among the key drivers of global growth, according to the report, will be a strong recovery in Japan, lower oil prices and strong corporate investment funded by high profits.

Less positively from an Irish perspective, growth in global trade flows is expected to slow next year, meaning fewer opportunities for exporters. That said, at an anticipated rate of 5.8 per cent in 2012, growth in the volume of cross-Border trade in goods and services will be solid and in line with long-term averages.

Ireland’s gross domestic product is forecast to expand by 0.4 per cent in 2011, accelerating to 1.5 per cent next year.

All of the forecasts are subject to considerable risk, according to the fund.

“Financial stability risks have once again increased dramatically,” the report said. It goes on to raise concerns about “insufficiently strong policies” in the affected countries. It singled out Europe’s handling of its debt crisis and the absence of a credible medium-term plan in the US that would reverse that country’s very sharp increase in public indebtedness.

Among the policy prescriptions the fund urged on Europe was the continuation of the European Central Bank’s purchases of government bonds. The fund called on the Frankfurt bank to “intervene forcefully to support orderly markets in sovereign debt”.

The report also highlights the threats posed to global growth by volatile commodity prices, geopolitical tensions and vulnerabilities in emerging markets.