The world economy is entering a major downturn in the biggest financial crisis since the 1930s, said the International Monetary Fund (IMF).
In a hard-hitting report, the IMF warned the global economy was facing its most dangerous crisis for 70 years.
World economic growth will slow substantially this year, and only pick up modestly later in 2009, it said.
It warned the challenge for governments would be to stabilise economies while keeping a lid on inflation.
In its latest bi-annual World Economic Outlook report, the IMF said global economic growth would slow to 3.9% this year and then to just 3% in 2009 - its lowest level since 2002.
The IMF said the global financial crisis, which started with the collapse in US sub-prime mortgages in August 2007, had worsened in the past six months - and had entered a "tumultuous new phase" in September.
In its report, the IMF said that after four years of strong global growth led by emerging and developed economies, the world's economy was now heading into a major downturn led by leading industrialised nations.
Overall growth in the US, Europe, Japan and Canada would drop to 1.5% this year - and was set to fall even lower to just 0.5% next year, it said.
Conversely it has been developing countries in Africa and Asia which had seen the greatest expansion in growth in recent years - and where economic output was set to suffer the least.
Growth in emerging and developing countries would still be 6.9% this year, and 6.1% in 2009 - while growth in China would be still be an impressive 9.3% next year - the IMF forecast.
At the same time the impact of surging oil and food prices had led to rates of inflation not seen for 10 years, it warned.
The IMF's latest World Economic Outlook report has come out just ahead of the annual IMF-World Bank meeting in the US.