The global economy will grow at a much slower pace in the next two years, the International Monetary Fund (IMF) has warned.

In its April economic forecast, the IMF said it expects world economic growth to slow to just 3.7 per cent in 2008, 1.25 per cent lower than growth in 2007.

The IMF blames the sharp slowdown on the global credit crunch, which has been caused by the problems in the US sub-prime housing market.

And the group admitted that the US would slip into a "mild recession" in 2008, from which it will recover only modestly in 2009.

According to the report, US economic growth will slow to 0.5 per cent this year, down from a 2.2 per cent growth rate in 2007.

IMF chief economist Simon Johnson said: "Against the backdrop of weak financial market confidence, we expect consumption to remain weak in the coming quarters due to deteriorating labour market conditions, sluggish growth in disposable incomes, higher energy costs, and tighter constraints on household borrowing."

"Notwithstanding aggressive easing by the Federal Reserve and a timely fiscal stimulus package, significant strains in housing and credit markets are likely to be protracted.”

The report has marked down sharply its UK forecast for 2008 to 1.6 per cent, which is well below Chancellor Alistair Darling's forecast of about 2 per cent growth this year.