The IMF said a still developing financial upheaval — the most violent since the 1930s — would exact a heavy economic toll as markets wrestle with a crisis of confidence and global credit is choked off.

In its report, the IMF warned that credit conditions would remain very difficult, restraining global growth prospects. “The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,” the IMF said in its World Economic Outlook.

In hindsight, the IMF said lax economic and regulatory policies probably allowed the global economy to “exceed its speed limit”. At the same time, market flaws, together with policy shortcomings, allowed stresses to build.

The IMF slashed its 2009 forecast for world growth to 3 per cent, which would be the slowest pace in seven years, from a July projection of 3.9 per cent, and warned that a recovery would be unusually slow. It said growth this year would come in at 3.9 per cent, a touch below the 4.1 per cent projected in July.

In its latest report, the global economic watchdog warned that emerging and developing economies were also slowing, and, in some cases to rates well below trend.

China and India will experience slower growth on weaker exports, but should continue to be supported by solid private consumption, according to the report.

Growth in China is likely to remain at 9.7 per cent this year and 9.3 per cent in 2009, compared with 11.9 per cent in 2007, the IMF said. India will grow at 7.9 per cent this year and slow to 6.9 per cent in 2009, it said. The Indian economy grew 9.3 per cent last year.

Elsewhere in Asia, domestic demand has softened as high food and fuel prices have weighed on consumption.