A much-needed global rebalancing of demand to propel economic recovery is "stuck in midstream," according to an International Monetary Fund report released Friday.

In the report prepared for the November 3-4 G20 summit in Cannes, the IMF said that two important shifts necessary to restore global sustainable economic growth and strengthen the financial system were not moving ahead.

The first "rebalancing" is a move inside countries from state-driven demand to the private sector.

The second, which seems to point most directly at the deeply imbalanced US-China trade relationship, calls for countries with current account deficits to shift from internal demand to external demand, and, conversely, those with surpluses to strengthen domestic demand rather than focus on selling things to outside markets.

"The 'dual rebalancing' acts, however, are stuck in midstream," the IMF told the G20, exacerbating the fragility of the global economy.

While governments are cutting spending to overcome their fiscal deficits, it pointed out, private demand in the form of investment and consumption is not filling the gap, slowing growth when it needs to pick up.

It said this is in part due to new shocks, like Japan's March 11 earthquake/tsunami disaster, and to the eurozone turmoil.

"At the same time, global demand rebalancing has stalled, as domestic demand in key surplus countries has not accelerated because underlying impediments remain unaddressed."

The result is to exacerbate continuing weaknesses in the global economy and financial sector, "posing risks to financial stability," the report said.

"Thus, understanding large imbalances within and across countries has taken on renewed importance," it said, summing up the glum assessment.

"Policy makers need to move with a greater sense of urgency on reaching an agreement on policies that will reduce imbalances and lay the foundation for restoring the global economy to health."

The report said both Japan and the United States had not made adequate progress on righting their huge budget deficit and debt burdens, while China, a huge surplus economy, was preventing the appreciation of its currency, which could help in the rebalancing effort by boosting its foreign and domestic demand.

"To offset weaker demand in major advanced partner countries, internal demand will need to increase elsewhere, notably China (and other surplus countries in the G-20) to support domestic and global growth."