Storm clouds gather over global economy as world struggles to shake off crisis

Britain is among a handful of shining lights in the global economy this year as the world sees the slowest period of growth since the depths of the financial crisis, according to the International Monetary Fund.

The IMF edged up its forecast for UK growth in 2015 amid downgrades "across the board" for advanced and emerging economies. It said China's slowdown, falling commodity prices and an expected increase in US interest rates would all weigh on output.

The world economy is now expected to expand by 3.1pc in 2015, from a forecast of 3.3pc in July. This represents the slowest expansion since 2009, when global growth ground to a halt.

Growth in 2016 is expected to pick up to 3.6pc. However, this is below the 3.8pc expansion that was previously forecast.

“Six years after the world economy emerged from its broadest and deepest post-war recession, the holy grail of robust and synchronised global expansion remains elusive,” said Maurice Obstfeld, the IMF's chief economist.

“Despite considerable differences in country-specific outlooks, the new forecasts mark down expected near-term growth marginally but nearly across the board. Moreover, downside risks to the world economy appear more pronounced that they did just a few months ago."

The Fund warned that the risk of recession in the US, eurozone and Japan over the next year had increased over the past six months, as emerging markets face a fifth year of slowing growth.

Years of weak demand and anaemic productivity growth meant the likelihood of damage to growth over the medium term was "increasingly a concern", the IMF warned. A further decline in global demand could lead to "near stagnation" in advanced economies if emerging markets continued to falter, it added.

The UK economy is projected to grow by 2.5pc this year, up slightly on the IMF's July forecast of 2.4pc. Its projection for 2016 growth was unchanged, at 2.2pc. "In the United Kingdom, continued steady growth is expected, supported by lower oil prices and continued recovery in wage growth," the IMF said in its latest World Economic Outlook.

The outlook also showed US growth for 2015 was also higher than it expected three months ago, while Italy saw upgrades for both 2015 and 2016.

The world's biggest economy is expected to lead growth in the G7 this year. However, both the UK and US economies have recently shown signs of slowing down.

The IMF's latest healthcheck also showed it expected the UK government to balance its books by 2020. Back in April, the Fund said uncertainty surrounding the outcome of the general election meant Chancellor George Osborne would not post a budget surplus.

Mr Obstfeld said the UK and the US were "not totally immune" to an expected slowdown in China, but were less exposed than countries with closer trade links. According to the Bank of England, if Chinese growth turned out to be 3pc lower over the next three years than its current forecast, it would only knock 0.1pc off UK growth.

While the IMF's downgrades were biggest among commodity exporters, advanced economies including Japan - which is struggling to haul itself out of a two-decade malaise - and Germany also had their growth forecasts trimmed.

Canada, which has suffered from the dramatic decline in the oil price, is expected to expand by 1pc this year, from a previous forecast of 1.5pc. The commodity slump is expected to leave Brazil languishing in recession for the next two years, even as the country prepares to host the Olympics in 2016.

The IMF said the risk of a recession was now higher in the "Latin America 5" - Brazil, Chile, Colombia, Mexico and Peru - than the “rest of the world” group.

The IMF also believes the recession in Russia will stretch into 2016, following a warning by the IMF that the pain was "largely ahead" for oil exporters, with prices only expected to increase gradually over the forecast horizon, from an average of $52 (£34.20) a barrel in 2015 to about $55 a barrel in 2017.

The IMF also said eurozone inflation was likely to remain below the European Central Bank's target of just below 2pc even at the end of the decade. The Fund has previously urged the ECB to "stand ready" to deploy its "full arsenal of instruments” and extend its €1.1 trillion bond-buying programme beyond 2016 if necessary.

The Fund said countries should prepare for higher interest rates in the US, which it expects at around the turn of this year. The IMF added that the Bank of England was expected to raise rates in 2016.

"Emerging market and developing economies need to be ready for monetary policy normalisation by the United States," the IMF said. "Advanced economies must continue to deal with crisis legacies where they persist. At the same time, monetary accommodation should continue where output gaps are negative, supplemented by fiscal measures where fiscal space permits."