By BBC News Online's David Schepp in Washington, DC

Global economic growth is clearly slowing in response to sluggishness in the US economy, but the European Central Bank could do far more to help ease the downturn.

(The ECB) has been subtracting from world economic growth, not adding to it

Michael Mussa, Chief Economist, IMF

That is the message from the International Monetary Fund, which has revised its estimate of global economic growth downward to 3.2% in 2001 from its previous estimate of 4.2%.

The US will feel the bulk of the pain, slipping from a previous yearly growth rate of over 5% to just a forecast of 1.7% for 2001 and 2.5% in 2002.

"The rapid change in the US economic outlook has taken most people by surprise," says an advance copy of the IMF's semi-annual World Economic Outlook. "[It is] the most rapid adjustment in expectations since the early 1990s when the United States entered its last recession."

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At a press conference following the release of the report, Michael Mussa, the IMF's director of research, said that data suggested a "substantial and broadly supported slowdown in worldwide growth."

He said that the likelihood of a world recession was slight, as long as governments and central banks made an appropriate policy response.

But he warned that further falls in US stock markets or consumer confidence could lead to a deeper and longer recession.

ECB criticism

Mr Mussa generally gave glowing remarks for the US's reaction to the economic slowdown.

"The US Federal Reserve has already appropriately cut interest rates by 200 basis points," Mr Mussa said, adding that a tax cut, such as the one proposed by President George W Bush should help stimulate the economy.

He saved his harshest criticism for the European Central Bank for its stubborn stance on interest rates.

On Thursday the ECB decided to keep interest rates unchanged. They have been held at 4.75% since October, which the Bank argues is a prudent policy which keeps inflation in check.

"The euro area is the one exception to monetary easing," Mr Mussa said.

He added, however, that the balance has shifted toward reducing interest rates. "The case for easing in unambiguous", he said, adding that the euro zone through its strict monetary policies "has been subtracting from world economic growth, not adding to it."

Growth in Europe is expected to slow from 3.4% in 2000 to 2.4% in 2001.

The lack of pro-growth posture has put pressure on the single European currency, the euro, reducing its value in relation to other currencies, Mr Mussa said.

The euro has fallen by nearly 25% against the dollar since its launch two years ago, and is now trading at about $0.90.

UK slows less

The IMF also cut its growth forecast for the UK from 2.8% to 2.6% this year, the smallest revision for any of the major industrial countries

But it warned that the UK remained more vulnerable to external developments than other European economies and the risks were "on the downside."

After noting that "inflationary pressures remain subdued," it urged the Bank of England to cut interest rates further if the economic outlook continues to decline.

"There remains room for further easing if the growth outlook were to deteriorate further," the IMF report said.

Japan in trouble

The IMF is also pessimistic about Japan, where it has cut its growth forecast this year to 0.6%.

In response to a question about Japan's stalled economy, Mr Mussa said, "the Japanese economy does need economic structural reform."

Mr Mussa added that Japan needs to deal with a series of bad loans and suggested that tax increases need not necessarily have a negative effect on growth.

He also said Japan's monetary policy to loosen credit requirements "will put downward pressure on the yen" but that should not be a concern because economic growth takes precedence.

However, he said, if there was excessive depreciation of the yen, the Japanese government should to take action to stop drastic erosion of Japan's currency.