The fund also slightly lowered its forecast for Japan's economy to 1.1 per cent growth in 2018, down 0.1 of a percentage point from an April estimate, but maintained a prediction for a 0.9 per cent Japanese expansion in 2019.
"Owing to these changes, our global growth projections for both this year and next are downgraded to 3.7 per cent, 0.2 percentage point below our last assessments and the same rate achieved in 2017", the report said.
The worldwide finance agency dropped its projection for world economic growth by two-tenths of a percentage point for both 2018 and 2019 to 3.7 percent, the first time it had trimmed its economic outlook in more than two years.
This acceleration reflected a rebound from transitory shocks (demonetisation and implementation of the GST), with strengthening investment and robust private consumption, it said.
Output could fall by more than 1.6 per cent in China and over 0.9 per cent in the United States next year, according to the IMF's models.
"China and a number of Asian economies are also projected to experience somewhat weaker growth in 2019 in the aftermath of the recently announced trade measures", it said.
The Toronto Stock Exchange's S&P/TSX composite index was down 70.78 points, or 0.44 per cent, at 15,875.39.
The risk of a global financial crisis initiated by sharp capital outflows in emerging markets due to the divergence of monetary policies in the United States and developing countries remains small but will grow as the Federal Reserve continues to raise its interest rates, as it is expected to do this year and next.
The warning comes as finance ministers and central bankers from the IMF's 189 member nations prepare to meet this week in Bali for the annual meetings of the fund and its sister institution, the World Bank.
India's medium-term growth prospects remain strong at 7.75 per cent, benefiting from ongoing structural reform.
These include instances where some key economies have supported their growth with policies that seem unsustainable over the longer term. "The current crisis in Pakistan has been triggered by a balance of payment issue and inadequate foreign exchange reserves to pay for imports", Valecha said. The IMF also warned the new government that growth would likely slow and inflation rise further if it does not act fast. It is therefore closer to the government's forecast for 2.5 percent growth, and the latest projection by the European Commission (in July) for 2.3 percent.
It added, "A high interest burden and risks from rising yields also require continued focus on debt reduction to establish policy credibility and build buffers".
He said the aggregate growth rate of Africa is being held down by its three largest economies.