David Cameron said the situation could leave countries like Britain “staring down the barrel”.
Mr Cameron’s concerns are matched by politicians, bankers and investors who are becoming increasingly worried that Government debts are dragging down the world’s economy, which could see the world’s biggest economies sliding back into a recession.
Mounting gloomy economic data has accumulated this week, with stock markets around the world falling sharply again and the FTSE-100 seeing its biggest drop for more than two years.
The Prime Minister was speaking in Ottawa, where he also warned that political indecision would only worsen the financial crisis.
“We're not quite staring down the barrel, but the pattern is clear," he said "Growth in Europe has stalled, growth in America has stalled."
Earlier this week, Mr Cameron also penned an open letter to US and European leaders, which was signed by leaders from Australia, Canada, Indonesia, Mexico and Korea.
“Barriers to action are now political as much as economic. We must send a clear signal that we are ready to take the actions necessary to maintain growth and stability for all for the future,” the letter said.
Mr Cameron went onto criticise US and eurozone Governments for not doing enough to reduce budget deficits.
The letter said the US "needs to overcome the remaining hurdles towards restoring medium–term fiscal sustainability,” and eurozone Governments must “act swiftly” to restore markets’ confidence in the single currency and struggling countries.
Christine Lagarde, the International Monetary Fund’s managing director, also voiced her concerns at a meeting in Washington.
"The current economic situation is entering a dangerous phase," she said.
She also warned that the world was facing a prolonged crisis unless leaders could find the "political determination" to set the recovery back on track.
The Bank of England is expected to launch a new round of quantitative easing, printing new money, as soon as next month.
Sir Mervyn King, the Bank of England governor, sparked controversy this week by missing a key meeting of the IMF in Washington this week, sending his deputy, Charlie Bean, instead.
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