IMF warns global economy "fragile"

By Lesley Wroughton

WASHINGTON (Reuters) - The International Monetary Fund on Thursday revised up estimates it made in April for global growth this year and next, but coupled it with stern warnings that demand was slowing sharply in major industrial economies and inflation rising everywhere.

In an update of its April projections for the world economy, the IMF said the pace of growth is set to slow to 4.1 percent in 2008 from 5 percent in 2007 and to ease further in 2009 to 3.9 percent.

But those estimates were better than it foresaw in April when it predicted world growth would slow even more steeply to 3.7 percent in 2008 and 3.8 percent in 2009.

Explaining the changes in the global figures, IMF chief economist Simon Johnson said the effects of turmoil stemming from a U.S. subprime lending crisis were still filtering through the global economy, at a slower rate than previously expected.

He also said a U.S. fiscal stimulus package was also cushioning spending by American consumers, at least temporarily.

The IMF now estimates the U.S. economy will expand 1.3 percent in 2008, rather than 0.5 percent it estimated in April. It said growth in 2009 would be 0.8 percent instead of 0.6 percent.

But it stressed key problems were on the horizon.

"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.