Private demand remains weak and unemployment will continue to rise in 2010, according to the IMF's semi-annual World Economic Outlook, which was released Thursday. Yet things are looking a little better than they did this summer, according to the IMF.

"The recovery has started. Financial markets are healing," IMF chief economist Olivier Blanchard told reporters in Istanbul, where leaders from the IMF and World Bank are gathering for annual meetings.

The global economy will contract 1.1 percent this year, but will grow 3.1 percent in 2010, according to the IMF. That is better than figures released by the IMF in July, in which it forecast a 1.4-percent contraction in 2009 and 2.5-percent growth in 2010.

Governments warned against abandoning stimulus measures

But Blanchard warned that the current numbers "should not fool governments into thinking the crisis is over."

Public spending, not private consumption, has kept many economies going during the past year. The IMF warned that governments should not pull back on stimulus measures too early.

For the crisis to end, there needs to be an upsurge in private demand, something which is "clearly going to be a challenge for advanced countries," said Blanchard.

Economy will shrink in 2009

IMF chief Dominique Strauss-Kahn echoed this cautious optimism in a speech to students in Istanbul.

"The good news ... is that in our view the recovery really has started. That does not mean, and I want to be crystal clear on this, that the crisis is over," he told students in a speech in Istanbul.

The euro zone is expected to grow just 0.3 percent in 2010 and could face unemployment of nearly 12 percent by the end of 2011. The jobless rate in the United States is expected to peak at 10.1 percent next year, according to the IMF.

"The delay between growth resuming and the peak of unemployment can be ... as much as 14 months. Until unemployment will decrease, it's difficult to say that the crisis is over. It's too early to crow victory," Strauss-Kahn said.

Asia leads the way

Growth rates globally will remain relatively weak in the upcoming years, according to the report. The world economy is expected to grow 4 percent annually between 2010 and 2014. That's down from a 5 percent annual growth rate before the economic downturn.

Asia is expected to lead the recovery, with developing countries' economies predicted to grow 4.7 percent in 2010. China is expected to hit an 8.5 percent in 2009 and 9 percent next year.

The outlook is not as bright for advanced economies such as the United States, Europe and Japan, which will have an average growth rate of 1.3 percent in 2010.

th/dpa/AFP
Editor: Nancy Isenson