The International Monetary Fund has been forced to slash its global growth outlook after just three months, as market turmoil over China and the perilous effects of the oil price collapse weigh down on the world.
Emerging economies will slow to 4.3pc expansion this year, down from October's estimate of 4.5pc. Brazil received the largest single downgrade of any major economy, with the IMF expecting a deep recession of -3.5pc in 2016 - marking the country's worst period of economic contraction, eclipsing the Great Depression.
Britain's economic prospects remained unchanged at 2.2pc GDP growth this year and next.
The downgrades were partly were driven by a new bout of market volatility that has rocked global stocks since the start of the year.
Although its economic outlook for China had not changed over the last six months, the IMF admitted that investor panic over the world's second largest economy - which has driven stocks to their worst start to the year in two decades - could become a self-fulfilling prophecy.
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Fears over a Chinese slowdown "are having spillovers to other economies through trade channels and weaker commodity prices, as well as through diminishing confidence and increasing volatility in financial markets", said the report.
Even more worryingly for the world, a record 75pc post-war slide in oil prices was also failing to inject the global economy with a "positive supply shock" as consumers are have shown little sign of spending the dividend from lower fuel prices, said the IMF.
Unlike previous episodes of major oil price falls such as the mid-1980s, the current price crash showed a "limited pass-through of price declines to consumers", suggesting that households were still attempting to pay down debt eight years after the financial crisis, said the fund.
Low oil prices - which have crashed to levels last seen in 2003 - will also force commodity exporters to cut back on spending and reduce investment in the oil and gas industry.
"It's hard to see oil coming back to $100 a barrel any time soon," said Maurice Obstfeld, IMF chief economist. "This is something that is not going to go away and oil exporters will have to find a way to adjust to."
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Any further slide in prices, combined with still tepid growth could suck the world back into a deflationary vortex, said Mr Obstfeld.
Average inflation in the advanced world will be negative at -0.1pc this year, and 0pc in 2017, according to the IMF's calculations.
"There is a serious concern about deflationary pressures which go beyond what is being caused by falling commodity prices," said the US economist, who took over as head of the IMF's research in October. "We have to be vigilant against the deflationary trap."
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Brazil needs a Saviour: People take pictures of the statue of Christ the Redeemer in Rio Photo: AFP/Getty Images
The IMF also trimmed its outlook for the US, noting that its first interest rate rise in nine years would lead to a further strengthening in the dollar, hurting US manufacturing.
US growth will now "hold steady rather than gather further steam" at 2.6pc over the next two years, compared to an earlier forecast of 2.8pc.
Spain was the only major world economy to receive a growth boost, with its GDP expectations revised up by 0.2pc this year to 2.7pc and 0.1pc in 2017 to 2.3pc.
The IMF repeated its calls for central banks in the eurozone and Japan to continue their programmes of monetary stimulus and governments with low debt levels to embark on infrastructure spending to revive growth.
“All in all, there is a lot of uncertainty out there, and I think that contributes to the volatility,” said Mr Obstfeld. “We may be in for a bumpy ride this year."
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