Vinals said addressing high public debt levels should be part of exit strategy plans, warning that sovereign debt markets may be destabilized if the burden on public sector balance sheets begins to be perceived as unsustainable.

A summit of Group of Eight leaders from industrial countries on Wednesday committed to withdrawing stimulus spending only when a recovery looked secure.

"All were of the view that the crisis is a long way from being over. With luck, we have reached the bottom," German Chancellor Angela Merkel told reporters at the G8 in the Italian town of L'Aquila.

BELOW-TREND GROWTH AHEAD

The IMF said while the world's advanced economies are expected to recover modestly next year, growth will remain below potential until later in 2010, suggesting unemployment will rise further.

It said the US economy will contract 2.6 per cent this year, slightly less than it thought in April, with growth resuming in 2010, albeit at a mere 0.8 per cent.

The IMF said the euro-area economy would likely shrink 4.8 per cent in 2009, 0.6 per centage point more than it had forecast in April. Next year, the IMF said the euro-area would contract 0.3 per cent.

Japan's economy is expected to contract by 6 per cent this year, with growth resuming slightly to around 1.7 per cent next year.

Emerging and developing countries are likely to regain growth momentum during the second half of 2009, it said.

Blanchard said Asia cannot decouple from the global economy despite signs the region is emerging from the worldwide slump faster than many economists had expected.

... contd.