WASHINGTON (Reuters) - The International Monetary Fund (IMF) cut its 2008 forecast for world growth yesterday, warning the global economy will deliver the weakest performance in five years as US-originated financial strains intensify.

The IMF said no country will entirely escape the fallout from a crisis in the US sub-prime mortgage market, where loans made to less creditworthy borrowers were packed into securities by Wall Street firms and sold around the world.

Defaults are soaring on the loans and no one has a firm estimate on eventual losses.

Banks are continuing to write down billions of dollars in projected losses, raising fears they will be reluctant to lend, which would further crimp economic expansion.

"It is a significant slowdown. It is a global slowdown, without any question," IMF chief economist Simon Johnson told a media briefing.

He would not say the US would tip into a recession, but the IMF made plain that it was braced for more bad news.

"The overall balance of risks to the global growth outlook is still tilted to the downside," the IMF said in an update to its semiannual World Economic Outlook released in October.

The IMF lowered its global 2008 growth projection to 4.1 percent from 4.4 percent.

This would be the weakest performance since 2003, when world growth notched 3.6 percent, and reflects a marked slowdown from the 4.9 percent pace last year - although emerging economies have held up so far and China has not faltered.

"The financial market strains originating in the US sub-prime sector...have intensified, while the recent steep sell-off in global equity markets was symptomatic of rising uncertainty," it said.

The IMF cut its US growth forecast for this year by 0.4 percentage point to 1.5 percent and lowered the euro-zone projection by 0.5 percentage point to 1.6 percent.

European officials are trying to put some distance between themselves and the idea that a US slowdown necessarily means they too will suffer as the IMF suggested will happen.

A member of the European Central Bank's Governing Council, Athanasios Orphanides, said yesterday that he foresaw only a modest impact in Europe while acknowledging that US performance was coming in worse than expected.

"But in Europe until this point in time, the impact does not appear to be large and the economy continues to grow at a satisfactory level," Mr. Orphanides said.

The IMF said financial upheaval "has reached a new phase - a phase where credit concerns now extend beyond the subprime sector" and will need careful watching for fear it infects the whole global economy.