In addition, the IMF said banks will need at least an additional $500 billion in new capital to both rebuild balance sheets and restore systemic confidence.

Economist David Wang said the IMF "is not wasting time with being subtle or general."

"What is it that President Kennedy said? 'I appreciate candor almost as much as I appreciate good news.' Well, today we got a lot of candor from the IMF." Wang said. The IMF sees U.S. GDP contracting 1.6% in 2009; the euro zone's, 2%; and Japan's 2.6%. It said advanced economies will experience their worst contraction since World War II.

Negative cycle continues

Wang said the revised, low global growth rate is perhaps the most troubling prediction in the IMF's new forecast. For a variety of factors, emerging market economies can grow at higher rates than developed economies, which means a low, but still positive, global growth rate is "tantamount to a global recession."

"A 1.7% global growth rate is a recession. A 0.5% rate would be a pronounced recession," Wang said. Wang added that the pronounced global slump underscores the need for "large, coordinated fiscal and monetary stimulus, over quarters, if not years, to reverse the global economy's negative momentum."

Moreover, the IMF spoke to that negative cycle in its report. It warned that a "pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth."

In Wang's interpretation, that means there's concern that lower corporate revenue will lead to more job lay-offs, leading to further home mortgage foreclosures, creating yet another batch of bad bonds and assets, further reducing corporate revenue. "Continued, coordinated fiscal and monetary stimulus among all major economies is not an option now, it's a must," Wang added

Economic Analysis: The most sobering GDP forecast yet, from the IMF, an organization known for its cautious projections. Without question, the recession that started in the U.S. has spread to almost every economy, triggering a global recession that continues to deepen - - underscoring the need for stimulus in every major economic region, to create multiple engines of growth.