The global economy is set for another year of strong growth, the International Monetary Fund said yesterday, but it warned that rising inflationary pressures and a US economic downturn posed growing dangers.

In its twice-yearly World Economic Outlook, the IMF raised its 2006 forecast for global growth to 5.1 per cent from an April forecast of 4.9 per cent. It also predicted 4.9 per cent growth in 2007 versus a previous projection of 4.7 per cent.

Stronger growth in Europe and emerging economies should help offset a slowdown in the US, the global economic watchdog said.

There is a one in six chance that global growth could fall to 3.25 per cent or less in 2007, the IMF estimated.

If the forecast for 2006 materialises, it will mark the strongest four-year period of growth for the global economy in three decades.

"The United States has been so central to world growth, it is hard to know how much of world growth outside is autonomous of the United States," IMF chief economist Raghuram Rajan told Reuters in an interview.

"We know the United States is slowing but we don't know how much, partly because a lot of it is dependent on the housing market and those links with the rest of the economy," he added.

Mr Rajan said the slowdown in the US housing market had started but the real threat was if it slows more abruptly.

"Importantly, the slowdown in housing has yet to translate into significantly lower consumption," he said, adding that it was unclear how much US jobs and wage growth would offset the cooling housing market.

The fund estimated the US economy would grow 3.4 per cent in 2006 but it lowered its previous forecast for 2007 growth by 0.4 percentage point to 2.9 per cent.

Earlier, Mr Rajan told a news conference it was appropriate that the US Federal Reserve had halted a two-year string of interest rate hikes in August while there were uncertainties about where the US economy is headed.

But pausing too long while inflationary pressures and unit labour costs rose was risky, he cautioned.

"The Fed may soon be on the horns of a dilemma and monetary policy will need to be skilfully managed if the economy is not to be gored," Mr Rajan said.

Mr Rajan told Reuters he was not too concerned that a US slowdown would affect Chinese growth, saying the impact would only be marginal. Of greater concern was the threat that the US downturn may fan protectionism.

"The effects you have to worry more about is if US slowing prompts more talks about protectionism, about the yuan being relatively fixed and that channel becomes more active," he added.

In the euro area, growth is likely to pick up in 2006 and then moderate next year, while in Japan the economy should continue to expand, the IMF said.

"At this point, Germany is on a roll," Mr Rajan said. In emerging Asia, the IMF said the outlook was for continued strong growth of 8.3 per cent in 2006-07 - half a percentage point higher than projected in April.

The IMF said near-term risks to the outlook for Asia were broadly balanced but it said there was a possibility of even faster growth than projected in China and India.

The IMF voiced mild concern about the possibility of a disorderly unwinding of global economic imbalances that are caused by large deficits in the United States and massive surpluses in emerging Asia and oil producing nations.

"A smooth, market-led unwinding of these imbalances is the most likely outcome, although investors would need to continue increasing the share of US assets in their portfolios for many years to allow this to happen," it said.

Later Mr Rajan said the IMF's language on global economic imbalance concerns had changed slightly but it did not mean the fund was less concerned.

"The risk of an abrupt unwinding is not in our view a very high probability event but it is a very costly event if it occurs," Mr Rajan said.

He told Reuters a slowing US economy to some extent would help reduce the US current account deficit because consumption would slow.

The IMF has previously warned that if imbalances unwound quickly and in a disorderly way, it could force an adjustment in the US dollar.

The fund said the dollar's recent decline appeared to reflect expectations that US economic growth would moderate and that the dollar's interest rate premium over other currencies would probably narrow.

In real effective terms, the US dollar is now close to its average level since 1980, while the euro is somewhat above its long-run average and the yen somewhat below, the IMF said.