The International Monetary Fund is sharply downgrading its outlook for the U.S. and European economies on fears that Europe will not be able to solve its governmental debt crisis.

The IMF said Tuesday that the overall global economy will grow by 4 percent this year and next, fueled by rapid expansion in China, India and Brazil. But the agency painted a much gloomier picture for the United States and the 17 European nations that use the common euro currency.

The international funding agency predicted that the American economy, the world's largest, would expand by just 1.5 percent this year, and only slightly improve to 1.8 percent next year. By contrast, as recently as June, the IMF said the U.S. economic fortunes would advance by 2.5 percent this year and a bit more in 2012.

The IMF also downgraded its prediction for the eurozone nations, based on worries that Greece will default on its international bailout loans and destabilize the region. Greece is engaged this week in negotiations with its international creditors to avoid a default, but some financial analysts say Athens could still falter in the months ahead even if it resolves its immediate funding crisis.

The agency said the eurozone economy will grow by 1.6 percent this year and just 1.1 percent in 2012, with both projections down from the IMF's June forecasts.

The IMF's chief economist, Olivier Blanchard, said that “fear of the unknown is high.”

He said “strong policies are urgently needed” by U.S. and European leaders to reduce the risk of a sharp financial downturn. IMF officials say both U.S. and European lawmakers need to move decisively to cut governmental budget deficits. That task that has proved difficult on both continents and led to European street protests against austerity budget measures and contentious, often stalemated deficit negotiations in the U.S.