The International Monetary Fund has raised its forecast for global growth next year as more than USD 2 trillion in stimulus packages and demand in Asia pull the world economy out of its worst recession since World War II.

The Washington-based IMF said the economy will expand 3.1 % in 2010, more than a July forecast of 2.5 %.

The world economy will contract 1.1% this year, less than the 1.4 % projected in July, the IMF said.

So-called advanced economies including the US, Germany and Japan will lead the slump, shrinking 3.4 %. As a bloc, emerging economies will expand 1.7 %.

“The global economy appears to be expanding again, pulled by the strong performance of Asian economies and stabilization or modest recovery elsewhere,” IMF said in its semi-annual World Economic Outlook.

Still, the rebound will be “sluggish, credit constrained and, for quite some time, jobless.”

"Emerging Europe has been hit particularly hard by the drop in capital inflows. This led to major contractions in the Baltic economies, Bulgaria, and Romania, although exchange rates acted as a shock absorber in economies with flexible regimes,“ the document said.

According to the IMF the pace of contraction has slowed dramatically in much of the region, with risk appetite returning, exports accelerating, and the inventory drawdown moderating, although private credit remains sluggish and unemployment is on the rise.

Despite the improved outlook, however, the fund said there were a number of risks to the recovery.

It cited major government stimulus packages, central bank support and restocking by companies that have run down inventories as three temporary factors that "will diminish during the course of 2010".

It also highlighted the fact that banks are being forced to hold more cash in reserve, which will limit the amount of credit available "for the remainder of 2009 and into 2010".

With less money available to companies and individuals to borrow, and therefore invest, demand may be stifled.

Most serious, it concluded, was the fact that "private demand in advanced economies remains very weak".

The IMF’s forecast for the global expansion in 2010 is below those from Deutsche Bank AG and JPMorgan Chase & Co., which anticipate growth of 3.5 % and 3.4 % respectively.

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