The International Monetary Fund updated its outlook on the global economy Wednesday, saying financial conditions around the world are improving faster than it expected.
IMF economists say global economic output will still shrink this year by 1.4 percent because of the slowdown in global trade. But their forecast now calls for the world economy to grow by 2.5 percent in 2010, more than the 1.9 percent it predicted in April.
The IMF report warns an economic recovery still depends on government intervention. It says governments need to continue pushing stimulus measures, including increased spending or greater tax cuts, through 2010.
The IMF also warned many banks are still in trouble because of bad loans and that home prices around the world have yet to bottom out.
Many economists blame a decline in housing prices for helping to trigger the global financial crisis, especially in the United States where many banks had invested in bad home loans.
The revised IMF forecast says the U.S. economy, the world's largest, will shrink 2.6 percent this year and grow eight-tenths of a percent in 2010. Both predictions are slightly better than what the IMF foresaw in its April report.
The new forecast calls for China and India, two prominent emerging economies, to grow faster than it initially estimated. China's economy is now forecast to grow 7.5 percent this year while India is expected to grow at a 5.4 percent pace.
The IMF says other emerging Asian economies are likely to grow faster than expected. But the report cautions economic growth in these countries could slow if the economic recovery fails to take hold in advanced economies.
The IMF lowered its expectations for growth in Africa, the Middle East and Latin America, saying countries in those regions have been hurt more than expected by the slump in global trade.
IMF economists say most European countries will see their economies shrink more than expected this year but grow more than expected next year.
The IMF monitors the global economy, warns of impending crises and offers financial and technical advice to its 185 member nations.
Some information for this report was provided by AP and Reuters.