The International Monetary Fund sees slower world growth ahead and the possibility of a new recession rising for Europe.
In its World Economic Outlook released Tuesday, the IMF cut its projection of world economic output growth in 2015 from 4 percent to 3.8 percent, based on slower-than-anticipated economic activity in the first half of 2014. It also lowered its estimate of growth for this year, from 3.7 to 3.3 percent.
The IMF also reported greater downside risks, especially for Europe. It raised its estimate of the probability that the euro area would fall into a recession in the next six months to 38 percent, nearly double what it was in April. Europe also faces a nearly one-in-three chance of experiencing deflation, according to the IMF, which cited low inflation, weak investment and the lingering effects of the financial crisis on demand, debt and unemployment in explaining the area's troubles.
The report also contained an deterioration in the outlook for the U.S., which the IMF now sees facing a 14 percent risk of a downturn, and Japan, a 24 percent risk.
The IMF acknowledged that it has overestimated global growth in each successive forecast since 2011.
Nevertheless, it remains relatively upbeat on prospects for the U.S., despite the report's view that downside risks of a recession have increased, reflecting the possibility of a financial disruption, fiscal brinksmanship by Congress or headwinds from abroad.
The U.S. recovery, the report said, is "underpinned by an improving labor market, better household balance sheets, favorable financial conditions, a healthier housing market as household formation gradually returns to levels that are more closely aligned with demographic factors, higher nonresidential investment as firms finally upgrade aging capital stock, and a smaller fiscal drag."