OTTAWA – The International Monetary Fund is darkening its outlook for the Canadian and world economies, throwing into question some of the projections made by the Harper government in its budget Tuesday.

The new global outlook, released today, sees the world falling much deeper into recession than previous forecasts, but also projects a more feeble recovery than either the Bank of Canada or the budget assumes.

The IMF says Canada's gross domestic product will shrink by 1.2 per cent this year while the world economy inches forward by only 0.5 per cent – considered a recession in global terms.

It's the 2010 forecast for Canada where the international financial group parts company with both Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney.

The IMF says Canada's economy will begin to grow next year but at a tepid 1.6 per cent pace, barely getting the economy back to where it was last year and still in negative territory if population growth is included.

The Bank of Canada projected last week that Canada will rebound to 3.8 per cent growth in 2010, now looking astonishingly out of step with almost every other forecaster.

Flaherty's budget was more cautions, predicting 2.4 per cent growth in 2010, but it's also counting on a more springy bounce-back in future years to back his pledge to get Ottawa out of deficit in four years.

As well, Flaherty has pencilled in a rebound for commodity prices, particularly oil to US$64 a barrel – $22 more than current levels – that allows him to account for a 4.3 per cent bounce-back on nominal GDP from a 2.7 per cent contraction this year.

Nominal GDP is the value of what Canada produces and sells.

"Finance is going with a stronger GDP lift and a stronger terms of trade lift on higher commodities than seems to flow out of the IMF report, and stronger than what we would forecast too on both components," said Scotia Capital economist Derek Holt.

"The interesting thing is the IMF has lagged behind on the most bearish views of the economy, so the potential is that there may be even more downside risks."

Overall, the IMF says advanced economies will contract by two per cent this year, the first aggregate retreat since the Second World War.

Only the continuing growth of developing countries keeps the global economy from falling into negative territory, although they too are facing a serious downturn from average growth of 6.25 per cent last year to 3.25 per cent this year.

On oil, the IMF expects the price to average US$50 a barrel this year and US$60 in 2010. The price of crude traded today at US$41.53 a barrel on the New York Mercantile Exchange.

However, the world body cautions that all of its forecasts are uncertain and are more likely to be overly rosy rather than pessimistic.

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"Downside risks continue to dominate," the IMF notes, "as the scale and scope of the current financial crisis have taken the global economy into unchartered waters."

The IMF says the key to stopping the bleeding and returning to normalcy is solving the financial crisis and subsequent tight credit that plunged the world into recession in the first place.