Emerging economies will grow 5.4 percent in 2012 (down from an earlier forecast of 6.2 percent), with Central and Eastern Europe to slow to 1.1 percent from 5.1 percent and Russia to slow to 3.3 percent from 4.1 percent.

China's growth is expected to be 8.2 percent (down from a 9.2 percent forecast) and India 7.0 percent from (7.4 percent).

Olivier Blanchard, economic counsellor and director of the research department, said the two countries will slow largely due to internal reasons and not due to external fallout. Bank credit was still weak.

Sovereign credit risks were worsening in Europe.

"Sovereign financing risk has increased for many countries in the last three months," José Viñals, financial counsellor and director of the Monetary and Capital Markets Department, IMF said.

The IMF said the Euro area will shrink 0.5 percent in its World Economic Outlook, against a 1.6 percent positive forecast made in September.

Fiscally conservative Germany is expected to grow 0.3 percent.

Habitual spenders Spain will see growth shrinking by 1.7 percent and Italy hit by sovereign credit trouble will also fall 2.2 percent. Italy and Spain however may cut deficits by at least 3.0 percent to 2.5 percent from a year earlier.

The Euro area is got into trouble largely because habitually high spending states could not depreciate their currencies to destroy the real value of their mounting debt and effectively expropriate their creditors.

While a sovereign default inflicts harm only on holders of state debt, a currency depreciation reduces the real value of all debt, private and state, destroying also the value of even bank deposits, harming old people who have savings in particular.

UK will grow 0.6 percent down from 0.9 percent.

The US is expected to growth 1.8 percent the same as in the earlier forecast.

IMF said bank credit had to increase to create growth but capital had to be increased to help market confidence, Viñals said.

However state intervention to force banks to raise capital buffers may also involve further de-leveraging other economists have warned.

"Banks should increase capital by an increase in capital rather than credit," Blanchard said.

However slower credit would indicate lower inflation.

IMF was also raising 500 billion dollars to increase its resources.