By Andrew Quinn
WASHINGTON (Reuters) - No country is immune from an "escalating" euro zone crisis and each one must act to head off the risk of a global depression, the head of the International Monetary Fund said on Thursday.
IMF Managing Director Christine Lagarde, speaking at the U.S. State Department, said the outlook for the world economy is
"quite gloomy" and warned that failure to act collectively could lead to protectionism and isolation reminiscent of the 1930s depression.
"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating," Lagarde cautioned.
"It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action."
The IMF has warned that it is likely to cut its 2012 growth projections, with the economy struggling with a worsening two-year euro zone debt crisis and sluggish U.S. growth. There are also signs from falling Chinese factory output that manufacturers are struggling with waning global demand and tighter credit conditions.
European leaders last week agreed to lend up to 200 billion euros ($259.95 billion) to the IMF to help struggling euro zone states and are hoping non-European countries will also step in with loans provided through the global lender to help.
The IMF is currently in talks with member countries on providing additional resources to the Fund.
Lagarde said global economic leaders now needed to take a holistic approach toward addressing systemic weaknesses, such as those underscored by the current euro zone debt crisis.
"It is going to require efforts, it is going to require adjustment, and clearly it is going to have to start from the core of the crisis at the moment, which is obviously the European countries and in particular the countries of the euro zone," Lagarde said.
She cautioned, however, that democratic government processes often made quick fixes difficult, saying the collision of market expectations with political reality must be resolved.
"It is really that Gordian Knot that needs to be cracked, that needs to be addressed as collectively as possible, starting with those at the center but with the support of the international community probably channeled through the IMF," she said.
Lagarde noted some relative bright spots in the economies of Asia and Latin America, which she said had taken steps, with IMF help, during crises in the 1980s and 1990s to address weaknesses in their banking systems and financial regulatory frameworks.
"All those challenges that they faced in the days of the Asian crisis, of the Latin American crisis have now served them well," Lagarde said.
($1 = 0.7694 euros)
(Additional reporting by Lesley Wroughton; Editing by James Dalgleish)