RTTNews - The International Monetary Fund said Wednesday that worldwide economic growth is expected to expand 2.5 percent in 2010, 0.6 percent higher than the organization's earlier estimate of 1.9 percent in April.

India and China, whose economies are expected to expand 8.5 and 6.5 percent, respectively, will lead the increase, according to the IMF. But, the agency warned that the world economy would also contract 1.4 percent in 2009 and that economic recovery will be sluggish.

The IMF also projected that the Gross Domestic Product in advanced economies will decline by 3.8 percent in 2009 before growing by 0.6 percent in 2010.

The United States GDP will shrink 2.6 percent this year, and will expand 0.8 percent in 2010, according to the IMF.

The world economy is stabilizing, helped by unprecedented macroeconomic and financial policy report, the IMF said on its Web site. However, the recession is not over and the recovery is likely to be sluggish.

According to the IMF, risks to the global financial system have moderated, and the financial condition of banks has stabilized due to policy actions by central banks and governments in order to reduce the risk of systemic failure.

But, the agency also warned against complacency, saying that many vulnerabilities, such as the prolonged bank dependency on public funds, remain.

The financial sector continues to be dependent on significant public support, resulting in an unparalleled transfer of risk from the private to the public sector, the agency said, adding that the current slowing of bank credit growth and continued deleveraging might require more public intervention in the near term.

The importance of minimizing market uncertainty was also emphasized by the IMF on Wednesday. The agency suggested beginning work on exit strategies from financial, monetary and fiscal support policies in order to tame inflation concerns and balance public finances.

These strategies should be consistent across countries to avoid opportunities for financial and regulatory arbitrage, the IMF said. Medium-term policies should help establish a lasting framework of sound financial regulation, sustainable fiscal balances, and price stability.

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