The International Monetary Fund has raised its world economic growth forecast for this year after expansion last year exceeded expectations.

The IMF said today it now expects 2006 global economic expansion of 4.9% this year, up from the 4.3% it predicted last September. Growth in 2005 was 4.8%, ahead of the 4.3% it had forecast.

The global trade and finance body also offered an upbeat forecast for 2007, predicting growth of 4.7%.

There are still threats looming to the world’s economic health, chief among them the possibility that the rise in energy prices could trim consumer and business spending.

“Indeed, with the recent increase in geopolitical uncertainties in the Middle East, options market data suggest risks are slanted to the upside, with a 15-per-cent probability of oil prices spiking above $80 a barrel by mid 2006,” the IMF said in its report.

The Canadian economy is expected to grow by 3.1% this year, off from an earlier projection of 3.3%. Growth in 2007 is seen coming in at 3%, the IMF said.

“The new government has some fiscal room to manoeuvre in achieving its objective of lowering the tax burden and slowing spending growth, while maintaining fiscal surpluses and keeping government debt on a firm downward path,” the institution said.

“As in most other industrial countries, however, rising health-care costs present a long-term challenge to fiscal sustainability, and reforms to the public health system will be needed to contain costs.”

The main risks to the Canadian economy include the possibility of a slowdown in the U.S. economy, a sharp drop in the U.S. dollar and a decline in world commodity prices.