The IMF released its latest economic outlook yesterday, describing the world economy as being in "a tough spot". It has revised its April forecasts to reflect its view that the slowdown will be more prolonged.

"The slowdown in global growth, which started last summer, is expected to continue through the second half of 2008, with only a gradual recovery during 2009," the IMF said.

"The first quarter slowdown was somewhat less sharp than predicted in the April 2008 World Economic Outlook. However, recent indicators suggest a further deceleration of activity in the second half of 2008.

"In advanced economies, business and consumer sentiment have continued to retreat, while industrial production has weakened further. There have also been signs of weakening business activity in emerging economies."

Under the outlook, world growth is expected to contract from 4.8pc in the fourth quarter of last year to 3pc in the fourth quarter of this year, before picking up to 4.3pc in the final quarter of next year.

The IMF predicts the US will continue to grow at 1.3pc on an annual basis this year, but it says the economy will contract moderately during the second half of the year before gradually recovering next year.

The emerging and developing economies are also expected to "lose steam", which could have implications for Australia, which has ridden a resource boom fuelled by growth in China.

"In China, growth is projected to moderate from near 12pc in 2007 to around 10pc in 2008-09," the report says.

The risks on the downside and upside of the forecast are balanced, the IMF says.

On the downside, it points to possible further financial shocks that could put a strain on credit availability. Forceful policy responses to the financial turbulence have reduced concerns about a financial meltdown, but it says markets remain fragile.

On the positive side, the IMF says demand in emerging economies may be more resilient than projected.

It is also worried about inflation, in particular rising food prices in developing countries, which it says are at crisis point and could undermine stability in some countries.

Faced with rising food prices many low to middle income countries will struggle to feed their poorest citizens, it says.