IMF Europe director Antonio Borges warned on Wednesday that a global recession in 2012

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“can’t be ruled out,” citing a possibility that “activity will turn downwards.”

The IMF released its economic outlook for Europe in Brussels, at a time when the euro zone sovereign debt crisis is mutating into a new banking crisis, and “therefore we recommend changing economic policy” away from austerity and back towards stimulus, the 100-page report said.

Borges said there had been a major change in market sentiments in recent months, and "many investors all over the world became far more risk averse than before.”

He added: “We still predict growth in 2012, but very modest,” with the probability the economy will “stall” by year-end making recession a live threat, especially in Europe.

Changes in fiscal policy would be required, Borges said. “If ever there was a more significant recession in Europe ﷓ I hope that is not the case but we cannot exlude it ﷓ then we might have changed recommendations,” he said.

“All those countries with fiscal leeway might want to consider that,” he said, though he specifically ruled out Italy and Spain.

The IMF also pressed the eurozone Wednesday to resolve its debt crisis, saying a solution was long “overdue,” and warned governments against pursuing drastic budget cuts at the expense of growth.

“Finding a durable solution to the euro area sovereign crisis has become more than overdue,” the IMF said in its regional economic outlook for Europe released in Brussels. “(This) will require some difficult decisions to improve crisis management and a demonstration of unity behind the project of economic and monetary union that will convince markets,” it said.

Euro zone leaders agreed in July to expand the monetary union’s rescue fund and provide Greece with a second bailout to stem debt crisis contagion. But implementation has been delayed because a handful of parliaments have yet to approve the package. IMF said governments with sound finances should avoid drastic cuts.