The International Monetary Fund is warning the 17 eurozone countries that their economies face a possible severe downturn unless more is done to improve growth and ease political tensions.

In an annual review released Thursday, the Washington DC-based international lending agency says the countries using the euro have gone some way to boosting confidence in their monetary union's long-term viability.

However, "recovery remains elusive" for the region because tensions in financial markets, high borrowing costs for small businesses in the weaker economies and reticence by consumers to spend, the IMF says.

The eurozone economy is forecast to shrink 0.6 percent this year, and the IMF warned "further negative shocks...could severely impact growth."