International Monetary Fund has cut its 2003 global growth forecast to 3.2 per cent from 3.7 per cent due to the Iraq war and stock market declines, and is particularly worried about weak German growth.

An extract of the IMF's semi-annual World Economic Outlook obtained by Reuters on Wednesday says the relatively robust forecast is based on the assumption of oil prices averaging $31 per barrel and dynamic growth in Asia and transition countries.

"The global recovery is expected to continue during 2003, albeit at a relatively subdued pace, with GDP growth in the major currency areas remaining below potential until the end of the year," the outlook says.

The IMF's projections are based on the assumption that uncertainties surrounding the Iraq conflict are "broadly resolved" in the near term, with little spillover outside the region, and that the global economic impact is limited, the outlook says.

Its release coincided with the collapse of Saddam Hussein's rule in Baghdad on Wednesday as Iraqis cheered US marines driving through the east of the city and looters moved in.

The IMF has also lowered projected US growth to 2.2 per cent from 2.6 per cent, but says the United States is likely to continue to lead the global recovery.

However, risks to US growth are posed by the country's budget deficit, which could exceed five percent of GDP if the war continues for longer, as well as a slump in stock markets and the high current account deficit, according to the forecast.

The IMF has also cut its euro zone growth forecast to 1.1 per cent from 2.3 per cent, as a result of weak domestic demand, fiscal policy tightening and the euro's appreciation, the outlook says.

"The situation in Germany, where GDP growth is expected to be well under one percent for the third year running and strains in the financial sector are becoming increasingly apparent, is of particular concern," the report says.

The IMF has cut its forecast for Germany to 0.5 per cent from last September's 2.0 per cent.

The IMF has also cut its forecast for France to 1.2 per cent from 2.3 per cent, and for Italy to 1.1 per cent from 2.3 per cent.

The growth forecast for Japan was lowered to 0.8 per cent from 1.1 per cent. The United Kingdom forecast was lowered to 2.0 per cent from 2.4 per cent.

The IMF cut its prediction for Canada's 2003 GDP growth to 2.8 per cent from 3.4 per cent. The forecast for Russia fell to 4.0 per cent from 4.9 per cent.

The head of the International Monetary Fund had on Tuesday urged Europe and Japan to do more to reinvigorate prospects.

IMF Managing Director Horst Koehler told Reuters the global economy in 2003 would expand by "a bit more than last year (when growth came in at three percent) but not a lot more."

"There is a risk of a worse outcome. Nobody can rule it out," he said, noting it was "realistic that a moderate recovery is the most likely development".

Koehler said the global economic recovery, assuming a short war in Iraq, would pick up in the second half of this year but that lingering uncertainty about terrorism means that the world's major economies need "really to accelerate reforms".