The International Monetary Fund has said the world economic recession is expected to be 'particularly severe' for Ireland, due to what it called a 'painful reversal' of the building boom.

The comments came in the Washington-based organisation's bi-annual World Economic Outlook. The IMF forecast that the Irish economy would shrink by 8% this year and 3% in 2010, with the unemployment rate rising to 13% next year.

Finance looks at IMF banks report

The forecasts come a day after the IMF said Ireland was set to pay more than any other country to stabilise its banks.

World rebound 'depends on financial sector'

In its World Economic Outlook, the IMF said the world economy had fallen into a severe recession, cutting its forecast for global growth and calling for forceful action to spur a recovery.

It said the global economy was likely to contract 1.3% this year in the deepest post-World War Two recession by far. Growth is set to re-emerge to around 1.9% next year, it said.

The fund said its lower forecasts stemmed from assumptions that financial markets will take longer than previously expected to stabilise.

The IMF warned that the turnaround depends on efforts by governments to nurse the global financial sector back to health by cleaning banks' balance sheets, and on additional budgetary and monetary policy measures in advanced economies.

The IMF said stimulus measures should at least be sustained, if not increased, in 2010, and it warned that premature withdrawal of stimulus could set back a recovery.

It said interest rates in major advanced economies are likely to be lowered to or remain near zero, and added that where there was room for further easing, authorities should move quickly to cut interest rates.

The IMF revised down its forecast for the US to a 2.8% contraction this year and no growth in 2010. Meanwhile, the euro zone economy will shrink by 4.2% this year and fall a further 0.4% in 2010, the IMF said, criticising the zone for weak public policy responses and co-ordination.

In Asia, where countries are being harder hit by a drop in global trade than by the financial crisis, the IMF said Japan's recession would be far deeper than previously thought, while China's economy will grow at a much slower pace.

In Japan, the IMF expects 2009 output to fall 6.2%, far worse than its January forecast for a 2.6% decline. For China, the IMF trimmed its 2009 growth forecast to 6.5% from 6.7%, which would be half the growth rate recorded in 2007, and down sharply from last year's 9%.