Washington - The United States economy is expected to enter a recession in 2008 and there is a 25-per-cent chance the rest of the world will follow suit, the International Monetary Fund forecast on Wednesday.

But the US recession, brought on by a crisis in housing and financial markets, is a mild one that will likely have a lesser effect on global growth than in past down-cycles, according to the IMF's semi-annual World Economic Outlook report.

Europe has been hit by the US slowdown as well as to a lesser extent Latin America, but emerging economies in Asia, Africa and the Middle East have all shown themselves to be largely resilient.

The world's largest economy is forecast to grow at 0.5 per cent in 2008, but will contract by 0.7 per cent on a fourth-quarter-to- fourth-quarter basis, the IMF said. That compares with a 2.7-per-cent rise in US gross domestic product in 2007.

The IMF already confirmed last week, after leaked media reports, that it projects world growth to slow to 3.7 per cent in 2008 after growing at a 4.9-per-cent clip in 2007.

There is a 25-per-cent chance 2008 growth will fall below 3 per cent, which the IMF rates as a global recession.

Simon Johnson, the IMF's chief economist, said there remained "downside risks" to global growth due to the unpredictability of financial markets. The Washington-based institution in a separate report on Tuesday said banks could suffer losses of nearly 1 trillion dollars from the crisis.

But the wider downturn is largely due to advanced economies struck by turmoil in financial and mortgage markets, which has in turn tightened lending practices and dampened consumer spending.

Growth in the euro area is forecast to slow to 1.4 per cent in 2008 from 2.6 per cent in 2007. Central and Eastern Europe meanwhile will see growth slow to 4.4 per cent on the year compared to 5.8 per cent in 2007, largely due to lesser demand in its western neighbours.

The European Central Bank - which has so far been reluctant to follow its US counterpart in lowering interest rates - could "afford some easing of the policy stance" as the downturn was likely to dampen inflationary pressures in 2009, the IMF report said.

Japan, though its financial institutions have so far escaped largely unscathed, will likely see growth slow to 1.4 per cent in 2008 from 2.1 per cent in 2007. The IMF said a decline in domestic spending and demand from the US and Europe could further dampen the outlook.

Developing countries by contrast have not seen a significant economic slowdown, but are now faced with the twin challenge of keeping their distance from industrial nations' troubles while avoiding a strong uptick in inflation.

Domestic demand has remained strong in China, India and Latin America, the IMF said.

China will grow at a 9.3-per-cent clip in 2008, down from 11.4 per cent the year before but still well above long-term trends. India will grow by 7.9 per cent in 2008 after climbing 9.2 per cent in 2007.

Inflationary pressures have come from a surge in food, metal and energy prices, which the IMF sees as the greatest risk to economic wellbeing in developing economies.

"Most likely there are continued inflationary and recessionary problems ahead for most of the IMF's 185 member countries," Johnson said.