The global economy is expected to shrink by 1.3 per cent this year before gaining almost 2 per cent next year as a recovery begins, according to a new report from the International Monetary Fund.

The study -- which predicts a rosier outlook for Canada than any other G8 nation -- calls the recession the most severe since the Second World War.

The report says the recovery is coming, but will be slow to arrive.

"There is light at the end of this long tunnel. World growth can turn positive by the end of this year, and unemployment can start decreasing by the end of next year," said Olivier Blanchard, chief economist for the Washington-based organization.

In the report, the IMF predicts that Canada's economy will perform more strongly than any other Group of Eight industrialized nation, this year and next.

Canada's economy will shrink by 2.5 per cent in 2009, compared to 2008, but will go on to gain 1.2 per cent in 2010, the report predicts.

Of the other G8 nations, only Japan and France are predicted to see growth next year.

Here are the predictions for all G8 nations (percentage number is the difference in growth compared to 2008):

  • Canada: 2009: -2.5 per cent, 2010: 1.2 per cent
  • U.S.: 2009: -2.8 per cent, 2010: no change
  • Germany: 2009: -5.6 per cent, 2010: -1.0
  • France: 2009: -3.0 per cent, 2010: 0.4 per cent
  • Italy: 2009: -4.4 per cent, 2010: -0.4 per cent
  • Russia: 2009: -6.0 per cent, 2010: 0.5 per cent
  • Spain: 2009: -3.0 per cent, 2010: -0.7 per cent
  • Japan: 2009: -6.2 per cent. 2010: 0.5 per cent
  • U.K.: 2009: -4.1 per cent, 2010: -0.4 per cent

The report predicts that the global economy will begin to recover by the end of the year. However, unemployment will continue to increase until the end of 2010, before beginning to decrease after that.

Policies that ease the flow of credit -- such as the lowering of key interest rates by central banks -- will be key to the global recovery, the study states.

"The immediate imperative is to move boldly with credible plans to deal with the financial crisis that has been at the core of the global recession over the past six months," the report states.

The report predicts that the world's emerging and developing economies will experience positive growth of 1.6 per cent this year, bouncing to 4 per cent in 2010.