The forecast was delivered in Tokyo at the Annual Meetings of the IMF and the World Bank Group, attended by finance ministers and central bank governors from 200 countries.
The IMF and World Bank were established after World War II as multi-national institutions to coordinate economic policy, encourage development and prevent crises. Israel is being represented at this year's talks by Bank of Israel Governor Stanley Fischer.
According to the forecast, the world economy – plagued by uncertainty and fresh setbacks – has weakened further and will grow more slowly over the next year.
Advanced economies are risking recession, the international lending organization said in a quarterly update of its World Economic Outlook, and the malaise is spreading to more dynamic emerging economies such as China.
The IMF predicts that the world economy will expand 3.3% this year, down from the estimate of 3.5% growth it issued in July. Its forecast for growth in 2013 is 3.6%, down from 3.9% three months ago and 4.1% in April.
Underpinning that bleaker scenario are the assumptions that Europe will continue to ease monetary policy and that the US will avert a crushing blow to growth by fending off a so-called "fiscal cliff" that could result from a failure to reach a compromise on its budget law and tax cuts.
Conditions could worsen if the United States doesn't deal with its budget crisis soon, the IMF said.
"Downside risks have increased and are considerable," the fund said. It said its forecasts are based "on critical policy action in the euro area and the United States, and it is very difficult to estimate the probability that this action will materialize."
Improvement in Israel
A completely different picture was presented by IMF economists in regards to Israel. According to the forecast, the Israeli economy is expected to expand 2.9% this year and 3.2% next year – a faster growth rate than most developed Western countries (Israel's growth rate totaled 4.7% in 2011).
The annual inflation rate is expected to remain low, at around 2%, and the unemployment rate will remain 7%.
The government's budget deficit, according to the IMF forecast, will stand at 3.5% of GDP and will drop to 3.3% next year. Moreover, the Israeli government's budget deficit is expected to fall to 2.5% of GDP in 2015.
That same year, for the sake of comparison, the American and British budget deficits are expected to remain 4.5% of those countries GDPs.
As a result of the improvement in Israel, IMF economists see an additional relaxation in the debt-to-GDP ratio, which is expected to drop to 73% next year, to 72% in 2014 (lower than the forecast for Germany's debt-to-GDP ratio), and to only 67% in five years.
In the US, the debt-to-GDP ratio is expected to increase to 112% next year and reach 114% in the following years.
Israel stands out in the charts accompanying the IMF's fiscal policy review as a country which was unusually successful in reducing the government debt during the crisis, as opposed to the global trend.
The accumulated debt of the 20 leading developed economies is expected to stabilize in the coming years around 120% of GDP. In Greece it will reach a record of 180% of GDP, in Italy – 128%, and in France – 93%.
The British government's debt is also expected to increase, but not to exceed the 100% of GDP threshold.
The forecast depends on the performance of most fiscal policies the governments have committed to so far, including the Israeli government.
The forecast does not take into account any political or security-related developments, which may affect the economy in both directions.
The Associated Press contributed to this report