BANGALORE, INDIA: The International Monetary Fund (IMF), which said on Wednesday that the global economy is slowly starting to pull out of its deepest recession since World War Two, raised India's growth forecast to 5.4 per cent for 2009.

It also projected the world economy to shrink by 1.4 per cent this year, a touch steeper than the 1.3 per cent decline it projected in April. However, the report said the world growth would strengthen to 2.5 per cent in 2010, compared to an April forecast of 1.9 per cent.

In an update of its World Economic Outlook, the IMF also raised its 2009 growth forecast for Asia's developing economies from 4.8 per cent to 5.5 per cent but cautioned that a sustained rebound will depend on recovery in developed economies. China's growth prospect is raised by one percentage point to 7.5 per cent.

"The upgrade owes to improved prospects in China and India, in part reflecting substantial macroeconomic stimulus, and a faster-than-expected turnaround in capital flows," the IMF report on global growth said. "However, the recent acceleration in growth is likely to peter out unless there is a recovery in advanced economies."

IMF chief economist Olivier Blanchard said forces dampening economic activity were easing in intensity but those pushing it up were still weak despite heavy government spending and central bank lending.

"This leads us to predict that while the world economy is still in recession, the recovery is coming but it is likely to be a weak recovery," Blanchard told a news conference.

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 U.S. 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 euro-area economy would likely shrink 4.8 per cent in 2009, 0.6 percentage 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.

Strong growth, particularly out of China and India had rekindled hopes the region could decouple from slower-growing advanced economies and recover on its own.

"After a tough first quarter, Asia, in particular, is now set for a stronger performance than we anticipated earlier," Blanchard said. The IMF revised up forecasts for Asia by nearly 1 per cent for both 2009 and 2010.

Stock market up

The IMF statement found its reflection in the stock market too, as most Indian stocks rose today following the raised growth forecast for India.

While TCS share rose 1.64 per cent to 386.30 from yesterday's closing of 380.05, Wipro gained 0.29 per cent and traded at Rs. 374.4. Satyam shares gained 4.19 per cent, trading at 73.40, while Tech Mahindra gained 1.84 per cent and traded at Rs. 698.3.

However, Infosys Technologies Ltd. slid after Stifel Nicolaus & Co. cut the stock’s rating. Its shares were down by 0.16 per cent and traded at Rs. 1703.

(Reuters contributed to this story)