The head of the IMF, Christine Lagarde, says it is too early to declare that the crisis in the eurozone is over.
The IMF called on the European Central Bank to take pre-emptive action to alleviate the lending crunch for small and medium businesses.
Mrs Lagarde said it is "premature to declare victory", warning that EU governments may have to end austerity policies and change to fiscal stimulus in order to see some economic growth and avoid lasting damage to the underlying economy.
"Looking past the headlines, there are clearly signs that not all is well," she told a forum in Brussels, highlighting the risk of a "vicious cycle" in which depressed demand and stagnant investment feed on each other.
She pointed to the existing mass unemployment which is undermining the economic recovery and also eroding job skills.
"Can a crisis really be over when 12% of the labour force is without a job? When unemployment among the youth is in very high double digits, reaching more than 50% in Greece and Spain?"
Pointing out that economic growth is low or declining in most European countries, she noted that “most of the demand for European goods and services comes from abroad, not from within, leaving the economy at the mercy of the ups and downs of global trade."
"The only durable solution lies in jump-starting growth. This means growth not only from stronger exports but also from a robust recovery in domestic demand."
Despite earlier indications of recovery in the region in the second quarter of the year, many countries have begun to fall back. Industrial output in Germany and France fell in October. Greece exited recession in the third quarter, but it is not expected to last.
