The International Monetary Fund has predicted that the global economy is set to shrink 1.3 per cent in 2009 - the deepest recession since 1945.

The world economy was likely to grow by 1.9 per cent next year, the global financial institution said, but that depended on measures taken to fix the ailing global financial system.

"The longer this goes on, the longer and the deeper will be the recession," said Olivier Blanchard, the IMF's chief economist, in Washington on Wednesday.

The grim report came as financial officials gather in Washington for meetings of the G7 and G20 nations, as well as of the IMF and its sister institution, the World Bank.

Three months ago, the IMF had projected a global growth rate of 0.5 per cent, although last month it warned of a deep recession.

The Washington-based body said it revised its forecasts downward because financial markets, hit by the fallout from the subprime mortgage crisis and the collapse of investment banks, would take longer to recover than was previously thought.

Global slowdown

The US economy, the largest in the world, was set to contract by 2.8 per cent in 2009, while Japan's, the second-largest, would shrink 6.2 per cent.

The IMF forecast contractions of 4.2 per cent in the European Union, 4.1 per cent in Britain and six per cent in Russia, and cut growth forecasts for China and India, to 6.5 per cent and 4.5 per cent respectively.

The crisis has also hit international trade, the IMF said, with volume expected to plunge by 11 per cent this year before rising by just 0.6 per cent in 2010.

The IMF said on Tuesday that banks and other financial institutions around the world face losses of up to $4.1 trillion.

It also said banks would very likely need to raise $875bn in fresh capital.