The International Monetary Fund today raised its 2010 global economic growth forecast by 0.6 percentage points, to 2.5%, but said recovery from recession would be sluggish.
The updated IMF forecast was marginally worse for 2009, showing a contraction of 1.4% across the global economy.
'The global economy is beginning to pull out of a recession unprecedented in the post-World War II era, but stabilisation is uneven and the recovery is expected to be sluggish,' the IMF said in an update to its bi-annual World Economic Outlook.
'Financial conditions have improved more than expected, owing mainly to public intervention, and recent data suggest that the rate of decline in economic activity is moderating, although to varying degrees among regions,' the IMF said.
'Despite these positive signs, the global recession is not over, and the recovery is still expected to be slow, as financial systems remain impaired, support from public policies will gradually diminish, and households in countries that suffered asset price busts will rebuild savings,' it added.
Last month, the IMF said that the Irish economy was perhaps the most overheated of all advanced economies. It said the collapse of tax revenue could push the budget deficit up to 12% of national income this year, compared with a Government target of 10.75%.
The IMF said that Ireland's seemingly unstoppable economic growth of recent years masked serious problems - including the fragility of the public finances. It added that generous rises in public sector wages pushed up wages elsewhere, making Ireland less competitive.
In today's report, the IMF said while the world's advanced economies are expected to recover slightly next year, growth will remain below potential until later in 2010, suggesting unemployment will continue to rise.
It predicted that the US economy will contract 2.6% this year, slightly less than it thought in April, with growth resuming in 2010 albeit at a mere 0.8%.
Euro zone economy to shrink by 4.8% this year
It said the euro zone economy would shrink by 4.8% in 2009, a downward revision of 0.6 percentage points from its April forecast. Next year, the IMF said the euro zone would contract 0.3%, slightly less than it forecast in April.
Japan's economy is expected to contract by 6% this year, with growth resuming slightly to around 1.7% next year, the IMF said.
Emerging and developing countries are likely to regain growth momentum during the second half of 2009, it said.
The fund said policies should remain supportive until growth resumes and deflationary risks dissipate. Where there is room, central banks should explore cutting interest rates further and signal that they intend to keep them low until a durable recovery is under way, it added.
It said the main priority for policy-makers should be repairing the battered financial sectors, with a focus on removing toxic debt from bank balance sheets and restructuring institutions.
It said concerns about rising government debt from efforts to shore up economies highlight the need to establish plans to tighten budgets over the medium-term.
