The International Monetary Fund has raised its global economic forecast after the impact of a credit crunch was not as severe as had been first feared.
The IMF said it now expects the global economy to grow 4.1% in 2008, up from an initial forecast of 3.7% in April. That compares with 5% growth in 2007.
Despite upgrading forecasts for the United States and Britain, the IMF warned that the global economy remained in a "tough spot" and policymakers need to balance growth, while dealing with inflation.
"The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing countries," the IMF said in an update to the World Economic Outlook it published in April.
The comments may go some way to easing concerns that many of the world's largest economies are heading for a prolonged recession, brought on by problems in the US housing market and the subsequent credit crunch.
According to the IMF, the US economy is also expected to perform better than initially forecast. It expects US growth of 1.3%, up from an April forecast of 0.5%. However, it warned that the economy was projected "to contract moderately during the second half of the year".
Based on its new calculations, the IMF expects the British economy to grow by 1.8% in 2008 and 1.7% in 2009 - up from a previous forecast of growth of 1.6% in both years. The British government has forecast growth of 2% this year and 2.5% in 2009.
The IMF added that risks to the world economy from the financial sector remained elevated and said inflation was an increasing concern.
"Inflation is mounting in both advanced and emerging economies, despite the global slowdown," the IMF said in its report.
It also pointed out that central banks and governments were having to juggle the twin problems of slowing economic growth and surging inflation, driven by record oil prices and higher food costs.
2008 growth forecast
Global economy to grow 4.1%
US to grow 1.3%
Japan to grow 1.5%
UK to grow by 1.8%
China to grow 9.7%
Source: IMF
