updated 9/29/2004 3:30:28 PM ET 2004-09-29T19:30:28

The world economy this year should post its best growth in three decades even though oil prices are up sharply and economic activity in the United States probably will be slower than previously thought.

Those were some of the assessments in the International Monetary Fund's latest World Economic Forecast released Wednesday.

After expanding by 3.9 percent in 2003, the global economy is now projected by the IMF to grow by 5 percent in 2004. That is a better forecast for this year than the 4.6 percent increase estimated in April. Should the new projection prove accurate, it would mark the strongest growth since 1973, an IMF spokesman said.

Global growth has been helped by factors that include rising corporate profitability, improved stock markets, strong housing markets and gains in employment, the agency said.

The revised projection for 2004 is encouraging for an economy battered by recession, terrorist attacks and war. But rising oil prices are still a concern, the IMF said.

The IMF predicted the U.S. economy will grow by 4.3 percent this year, compared with an earlier estimated increase of 4.6 percent. Even so, the revision would represent the best showing since 1999 and an improvement over the 3 percent gain in 2003.

The health of the U.S. economy is a prominent issue in the presidential campaign.

President Bush credits his tax cuts for helping the economy rebound from the 2001 recession. Democrat John Kerry contends those cuts mainly have helped the wealthy, squeezed the middle class and put the government deeper into debt.

The U.S. economy grew briskly in the first quarter of this year before slowing over the next three months. Federal Reserve Chairman Alan Greenspan has blamed that largely on high oil prices and said the economy has since gained some traction.

"This is a soft patch, not a sink hole," the IMF's chief economist, Raghuram Rajan, said of the slowdown.

For 2005, the global economy is expected to see slower growth, expanding by 4.3 percent, compared with the 4.4 percent estimate from the IMF in April.

"Looking forward, the global expansion _ while still solid _ will therefore likely be somewhat weaker than earlier expected," the IMF said. "The balance of risks has shifted to the downside with further oil price volatility a particular concern."

Crude oil prices on Wednesday dipped to $49.20 a barrel in midday trading. On Tuesday, oil prices surpassed $50 a barrel for the first time before ending the day at $49.90.

The IMF's forecasts are based on an assumption that oil prices would average around $37.25 a barrel this year and next.

Even with oil prices in the $50 range, "We don't think the effect will be huge," Rajan said. He said that big developed countries, including the United States, are better now than in the past with dealing with oil price jumps and that central banks have gained greater credibility in combating inflation.

Adjusted for inflation, oil prices are still about $30 a barrel below the level reached in 1981.

Nonetheless, Treasury Secretary John Snow said he would raise concerns about oil prices at Friday's meeting of financial officials from the world's richest countries.

The IMF is predicting the U.S. economy will moderate in 2005, increasing by 3.5 percent. That compares with an April projection of 3.9 percent.

For Japan, the IMF forecasts economic growth of 4.4 percent this year, slowing to 2.3 percent next year. Both estimates are higher than previous projections for each year made in April.

China is expected to grow by a blistering 9 percent in 2004, even stronger than earlier estimated. In 2005, China should grow by 7.5 percent, down from an earlier 8 percent estimate.

In Europe, Germany is projected to see an increase of 2 percent in economic growth this year, up from a 1.6 percent growth estimate made in April. The IMF also boosted 2004 growth projections for France and Italy to 2.6 percent and 1.4 percent, respectively.

Britain is expected to see its economy expand by 3.4 percent this year, slightly less than previously thought.

On other issues, Rajan said the health of Iraq's economy depends much on improving security. "One would be hopeful that Iraq would rebound very strongly once the security situation is dealt with," he said.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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