IMF: 2011 GLOBAL GROWTH SEEN SLOWING TO 4.2% FROM 4.8% IN 2010

Washington, October 7 -(Dow Jones)- Global growth will slow sharply, more than expected from an already sluggish pace, as advanced economies slash their budgets amid the ongoing sovereign debt crisis, the International Monetary Fund said Wednesday.

While emerging markets such as China and India will are predicted to remain growth-champions, European public debt problems will continue to undermine the recovery in industrialized nations.

Growth prospects for the U.S. took the IMF's biggest downgrade, falling to 2.2% from a previous estimate of 2.9%. China's growth is still expected to fall slightly in 2011, to a still-steamy 9.6%, from 10.5% expansion this year.

The downside-risks remain elevated in the face of a fragile economic recovery, the IMF said in its World Economic Outlook.

"The financial sector is still vulnerable to shocks and growth appears to be slowing as policy stimulus wanes," predominantly in advanced economies, the IMF said.

Renewed turbulence from the sovereign debt crisis has the potential of "inflicting major damage on the recovery," a risk elevated by the mountainous wall of around $4 trillion in debt that has to be refinanced over the next two years.

"Simultaneously addressing both budgetary and competitiveness problems in a deteriorating external environment is likely to take a heavy toll on growth," the Fund said.

And while specific plans to cut budgets to reduce public debt are urgently needed, if growth slows markedly more than expected, the IMF recommended that some countries with fiscal room to spare should postpone their planned belt-tightening.

The Fund complained that medium-term plans for "growth-friendly" fiscal consolidations promised by rich G-20 nations are still missing.

"This task is now more urgent than it was six months ago," especially given the possibility that some countries may need to postpone their 2011 plans to cut budgets.

High anxieties in the financial sector, weak real estate markets and slow inventory rebuilding will curb a transition to a privately-led recovery from government-stimulated expansion.

The IMF said a sustained, healthy recovery requires a careful rebalancing act, both domestically and on the global current account. Rich nations need to strengthen private demand, which would buy room for budget cuts. Deficit countries, such as the U.S., need to boost their net exports, while surplus countries, particularly Asia, must cut their net exports.

In a clear nod to the Chinese, the IMF said the rebalancing could only be done with support from greater exchange rate flexibility from undervalued currencies.

Rebalancing and forex issues have been propelled to the fore of IMF and ministerial talks in Washington this week, as concerns over the yuan and fiscal tightening have risen in recent weeks.

"Unless financial and structural policies are significantly strengthened, potential output in advanced economies is likely to remain appreciably below precrisis levels," the IMF said.

Although domestic demand in emerging economies is more robust than previously, the IMF expects global demand rebalancing to stall as domestic consumption won't be strong enough to offset weaker demand in advanced economies.

Adding to recovery headwinds, the IMF warned that financial sector overhauls need to be accelerated to restore healthy credit levels. "The financial sector remains the Achilles' heel of recovery prospects for private demand," the IMF said, calling restructuring efforts "painfully slow."

In many countries, the recovery is shaping into largely a jobless one: unemployment in advanced economies has receded only modestly from peak rates, with an estimated 210 million people across the globe without work.

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