IMF chief economist: 'global economy has entered dangerous new phase'

Olivier Blanchard from the International Monetary Fund (IMF) has warned that stock prices have fallen due to fear of the unknown.

Speaking at a press conference in Washington, the chief economist said: "The global economy has entered a dangerous new phase. The recovery has weakened considerably and downside risks have increased sharply.

"Fear of the unknown is very high. Stock prices have fallen. These will adversely affect spending and growth in the months to come.

"Markets have clearly become more sceptical about the ability of many countries to stabilise their public debt", Blanchard added.

As a result, the IMF has downgraded its economic outlook for the UK, the US and Europe through to the end of next year.

UK gross domestic product will grow just 1.1 per cent in 2011, compared with the IMF's report in April of 1.7 per cent. The US will grow by 0.4 per cent more than the UK.

The organisation has advised policymakers to pay particular attention to the eurozone crisis and weak activity in the US, which will affect global growth.