The Institute of International Finance said the global economy appears to be coming out of its torpor but that the leading industrial countries "face the immediate challenge of consolidating, deepening and broadening global economic recovery."

The IIF, in a letter to International Monetary Fund and World Bank policymakers meeting next week in Dubai, called for "a coordinated medium-term strategy that ensures that the recovery is sustainable."

"Without such a framework, there is a serious risk that the emerging global recovery could harbor the seeds of its own demise and be short-circuited in the next 12 to 18 months," the IIF said in its letter.

The IIF letter noted that there is mounting evidence of accelerating growth in the United States and indications that the Japanese economy is also strengthening.

However, it said "significant medium-term challenges lie ahead for all major industrial countries and it will require political courage and economic coordination to address them effectively."

For the United States, the IIF warned against growing budget and trade deficits that could spark higher interest rates or weaken the dollar with "severely adverse consequences."