The global slowdown resulting from the credit crunch has not been as sharp as initially feared, the International Monetary Fund (IMF) says.

The IMF said it now expects the global economy to grow 4.1% in 2008, up from an initial forecast of 3.7% in April.

However, this is still significantly slower than the 5% growth in 2007.

Despite upgrading its forecasts for both the UK and US economy, the IMF warned that the global economy remained in a "tough spot".

"The first quarter slowdown was somewhat less sharp than predicted," the IMF said in an update to the World Economic Outlook it published in April.

Revisions

The comments from the IMF may go some way to easing concerns that many of the world's largest economies are heading for a prolonged recession brought on by problems in the US housing market and the subsequent credit crunch.

Based on its new calculations, the IMF expects the UK economy to grow by 1.8% in 2008 and 1.7% in 2009 - up from a previous forecast of growth of 1.6% in both years.

The UK government has forecast growth of 2% this year and 2.5% in 2009.

According to the IMF, the US economy is also expected to perform better than initially forecast.

The IMF expects US growth of 1.3%, up from an April forecast of 0.5%.

However, it warned that the US economy was projected "to contract moderately during the second half of the year".

Resilient

The IMF warned that risks to the world economy from the financial sector remained elevated and said inflation was an increasing concern.

It also pointed out that central banks and governments were having to juggle the twin problems of slowing economic growth and surging inflation driven by record oil prices and higher food costs.

"Policymakers face a very difficult environment," the IMF said.

"They need to head off rising inflationary pressure, while also being mindful of downside risks to growth."

On the positive side, the IMF said that demand in advanced and emerging economies might be more resilient than first thought to recent jumps in commodity prices, and be able to resist shocks from the financial sector.

(BBC)

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