THE global economy is facing the toughest conditions in 25 years, federal Treasurer Wayne Swan has warned.

Mr Swan's comments came as the International Monetary Fund released its latest economic outlook, which described the world economy as being in "a tough spot", and said that the slowdown would be longer and deeper than forecast three months ago.

"The first-quarter slowdown was somewhat less sharp than predicted in the April 2008 World Economic Outlook," the IMF said. "However, recent indicators suggest a further deceleration of activity in the second half of 2008. In advanced economies, business and consumer sentiment have continued to retreat, while industrial production has weakened further. There have also been signs of weakening business activity in emerging economies."

Mr Swan said while global inflation was on the rise, and borrowing costs had risen, Australia was well insulated. "We have highly regarded regulators and do not face the same problems being experienced in the US subprime mortgage market," he said.

He said that the IMF's forecasts for growth in Asian and emerging economies also remained robust. "In particular, the growth outlook for China remains supportive of continued growth in Australia," he said.