Interventions have prevented further bank collapses

Worldwide economic growth is expected to recover to 2.5% in 2010, says the International Monetary Fund (IMF).

That is higher than the IMF's earlier estimate of 1.9% growth next year, made in April, with the increase expected to be led by India and China.

But the IMF still expects the global economy to contract 1.4% this year.

For the UK, the IMF has revised down its 2009 economic forecast by 0.1% to -4.2%, but it now expects the economy to expand by 0.2% next year.

The IMF had previously said it expected the British economy to contract by 0.4% in 2010.

Its latest estimates for the UK are consistent with those from the Organisation for Economic Cooperation and Development, but much weaker than forecasts from the government and many independent analysts.

'Sluggish recovery'

"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," said the IMF.

The IMF thinks global output has probably stopped falling in the past few months - but that's almost entirely due to better economic times in China and India.  Economics editor Stephanie Flanders Read Stephanie Flanders' latest blog

It says that the main policy priority remains restoring financial sector health.

The IMF has also published a revised financial stability report, in which it warns against complacency .

It says that the "risks to the global financial system have moderated from the extreme levels identified in April", but that vulnerabilities remain.

Reduced risk

"Financial conditions have improved more than expected, owing manly to public intervention, and recent data suggests that the rate of decline in economic activity is moderating, although to varying degrees among regions," said the IMF.

It said that actions by central banks and governments worldwide had succeeded in stabilising the financial conditions of banks.

Those interventions it said, had reduced the risk "of another systemic failure similar to the collapse of Lehman Brothers".

IMF world forecasts use purchasing parity exchange rates, which give more weight to China in the world economy.

Global economic growth based on market exchange rates - consistent with the way the World Bank calculates growth rates - is projected at -2.6% in 2009 and +1.7% in 2010.