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International Monetary Fund chief Christine Lagarde has urged "bold action" on
the faltering world economy, as the G7 group of leading economies met for talks
in Marseille.
The G7 is discussing a "coordinated response" to the economic turmoil.
The two-day meeting comes as the Organisation for Economic Co-operation and
Development (OECD) predicted a global slowdown this year.
Europe is also struggling with a sovereign debt crisis.
"The key message I wish to convey today [Friday] is that countries must act now
- and act boldly - to steer their economies through this dangerous new phase of
the recovery," Ms Lagarde said in London, before flying to the G7 meeting.
She also praised President Barack Obama's new $450bn ( 282bn) jobs plan to try
to boost the world's largest economy.
"All this is happening at a time when the scope for policy action is
considerably narrower than when the crisis first erupted," she said. "But while
the policy options may be fewer, there is a path to recovery."
'Credible' plans
Start Quote
It should probably be a matter of national pride that investors now apparently
have more confidence when lending to the UK as a sovereign than to Germany.
End Quote
image of Robert Peston Robert Peston Business editor, BBC News
Speaking at the same event in London before leaving for the G7 talks,
Chancellor George Osborne vowed to stick to the UK's deficit reduction plan -
which has so far helped the UK avoid the kind of bond market turmoil seen in
the eurozone.
"It is the rock of stability on which our economy is built," he said.
The IMF chief praised the UK's plans - with several caveats.
"Since the summer, the outlook has become more subdued - including in the rest
of Europe and the United States, the UK's major trading partners. So risk
levels are rising," she said.
Chancellor George Osborne: "The plan is the rock of stability upon which our
recovery is built"
"The policy stance remains appropriate, but this heightened risk means a
heightened readiness to respond - particularly if it looks like the economy is
headed for a prolonged period of weak growth and high unemployment."
In response, Labour's Ed Balls again argued for temporary tax cuts to help
kick-start the economy.
"While George Osborne insists there can never be a change of course and we must
plough on regardless, Christine Lagarde rightly warns ministers will need to
act if slow growth and high unemployment continues," the shadow chancellor
said.
Rocky road ahead
No communique will be issued after the talks in Marseille, according to French
Finance Minister Francois Baroin.
Earlier, Japanese Finance Minister Jun Azumi said he would explain his nation's
intervention to stem the increase in its currency, which has hurt its
exporters.
"Japan's economy has been steadily recovering, but I'm concerned that it is
showing some signs of downturn due to the yen's rise," Mr Azumi said.
"I want to share the view that it would be bad for the world economy if Japan's
economy faces downturn."
The OECD predicts the G7 economies will grow by just 0.2% in the last three
months of the year.
The group also expects 0.3% growth in the UK in the fourth quarter, but said
the economy could contract by as much as 1%.