IMF: World could sink into 1930s-style depression Christine Lagarde

The head of the International Monetary Fund has issued a stark warning that the global economy could slide into a repeat of the Great Depression of the 1930s.

Christine Lagarde said it was crucial countries co-operated to resolve the worsening debt crisis in Europe.

Failure to do so risked “retraction, rising protectionism, isolation”.

Speaking at the US State Department in Washington, Lagarde said: “This is exactly the description of what happened in the 1930s, and what followed is not something we are looking forward to.”

And she warned that the effects of the economic crisis could be felt anywhere.

“There is no economy in the world immune from the crisis that we not only see unfolding but escalating,” she said.

“It is going to be hopefully resolved by all countries, all regions actually taking action.”

But even as she spoke, the situation in Europe was worsening, with last week's agreement between the 26-EU members – excluding the UK – coming under pressure from unhappy member nations.

Hungary, the Czech Republic and Poland are understood to have significant doubts about the German-led plan.

Hungarian prime minister Viktor Orban said: “The only kind of co-operation we can have with the euro zone is one which does not damage Hungary’s competitiveness.”