Mr Koehler expects markets to "bounce back"

Horst Koehler, managing director of the IMF, said on Tuesday the global economy this year would exceed last year's 3% growth level.

But he also said rich nations may have to cut interest rates to speed up a recovery.

Although economic growth this year would outperform last year's, it would still be below the 3.7% global growth rate the IMF forecast last September.

"The world is facing great uncertainty at present", Mr Koehler told an audience at the Bank of Spain in Madrid.

I expect markets to bounce back Horst Koehler, managing director of the International Monetary Fund

But he added: "Barring a protracted war in the Middle East, which is unlikely, I expect the tentative recovery to continue."

He noted that the global economy had proved "remarkably resilient" in light of shocks to the system.

"And more fundamentally, we are in the midst of a technological revolution, in particular, in information technology, in nano technology, bio-technology and in medical sciences, which has the potential to sustain global growth for many years to come," he said.

"I expect markets to bounce back."

Latin America

Mr Koehler said there was a great need for more fundamental economic reform in Europe and for "adequate interpretation of the Stability and Growth Pact".

He added he was unhappy with current growth rates in the stagnant euro zone.

But Mr Koehler told his audience in Madrid he was upbeat about recovery in Latin America.

Latin America's economies were dragged down last year by the virtual collapse of Argentina's economy.

But Mr Koehler praised the economic policies of Brazil, Colombia and Peru.

"I also welcome the stabilisation of the economy in Argentina, although the economic situation remains fragile and there is still a need for a more comprehensive medium-term economic programme," he said.