The global economy will contract sharply this year and recover only sluggishly in 2010, the International Monetary Fund said on Wednesday as it called on governments to sustain or even increase fiscal stimulus next year.

The IMF said that world output would contract by 1.3 per cent this year and grow by just 1.9 per cent the year after in what it described as a “substantial downward revision” of its January forecasts, when it said that the global economy would grow by 0.5 per cent this year and spring back to 3 per cent growth in 2010