The International Monetary Fund scaled back its projections for global economic growth this week, adding that the prospect of political impasse in Europe and the U.S. may lead to "severe" repercussions.
The IMF reported the world economy will grow by 4 percent this year and next, marking a significant revision from its June forecasts of 4.3 percent growth in 2011 and 4.5 percent in 2012. However, if European officials can't reach a long-term sovereign debt solution, and if U.S. policymakers don't resolve their own federal deficit, the IMF warned that consequences could be far worse.
"Global activity has weakened and become more uneven, confidence has fallen sharply recently and downside risks are growing," the IMF said in the World Economic Outlook report.
The report added that European leaders must preserve trust in national policies and the euro currency. Deep political divisions in the U.S. may also prolong investor and consumer uncertainty.
But despite a slowdown in growth on both sides of the Atlantic, strong showings in emerging economies such as China, India and Brazil may offset those losses, the IMF pointed out.