With the world’s number one economy, the US, already in a mild recession and the second largest, Japan, expected to experience two consecutive years of contracting output for the first time since the second world war, the International Monetary Fund is clearly as alarmed about the global outlook as it has been in decades, the Guardian is reporting this morning.

In its first full assessment of the impact of the September 11 attacks, the IMF said that its previous set of forecasts – released in October – were already outdated and that the slowdown would be more prolonged than it had expected.

Just to add to the gloom, it noted that the world’s leading economies were in worse shape than previously thought, even before the terrorist attacks.

The Fund has now ripped up three sets of forecasts since the spring, and this latest set is clearly still a stab in the dark. In a note to the Fund’s key policymaking body, managing director Horst Koehler warned that the outlook remained subject to great uncertainty.

Koehler is pinning his hopes on the world economy starting to recover by the middle of next year, but the report notes that there are major risks in this assessment, writes reporter Charlotte Denny.

Top of the list is the U.S., where the Fund worries that confidence will fail to pick up. Consumers are still jittery about the prospects of further attacks, and high levels of debt built up in the good times may dissuade them from returning to the shopping malls.

The second risk troubling the Fund is that the global slowdown could send some of the more wobbly indebted economies to the wall, triggering a repeat of the Russian debt default in September 1998 which paralyzed the world’s financial markets. The most likely candidate is Argentina, which today begins the delicate process of negotiating a reduction in its huge interest bills with its creditors. If bondholders do not agree to cut interest payments and give Argentina longer to repay its debts, the country will be deemed to be in technical default by the international credit ratings agencies.