The International Monetary Fund has predicted the global economy will shrink by as much as 1.5 per cent this year - its first contraction since World War II.

Attributing much of the problem to "toxic assets" on banks' balance sheets, two reports made public on Thursday urged world government to act swiftly to deal with them.

The IMF reports were prepared for last week's G20 meeting, a gathering of the world's largest economies. The IMF said G20 countries should develop plans to cope with failing financial institutions before the broader economy is infected.

"Even in countries where banking sectors still appear resilient, the deepening global financial crisis is likely to imply greater stresses," it said.

Japan is expected to be hit hardest in 2009, with an expected economic contraction of nearly six per cent, the IMF said.

The euro zone is expected to decline by more than 3 per cent, while the US economy is forecast to shrink by more than 2.5 per cent.

Public outrage

From Washington to Paris, public anger over the economic crisis has been growing.

More than one million people turned out on the streets of Paris on Thursday to voice their frustration at the French government's reaction to the crisis.

France's national statistics agency says its economy is shrinking at its fastest rate in 30 years, and unemployment is expected to hit nearly 10 per cent this year.

The IMF has forecast gradual economic recovery for the world in 2010 to around zero growth, but added that a further cut its projections may be necessary if the crisis intensifies.

Discussion of the IMF reports is expected in London on April 2, when finance ministers of G20 countries will meet world leaders for another round of talks.