The global economy is expected to sharply decelerate to 1.5 per cent next year from 2.9 per cent in the current year due to the worsening downturn caused largely by the financial crisis in the United States, the United Nations agency for trade and development said on Wednesday.

Issuing a grim forecast in its Trade and Development Report, 2008, the United Nations Conference on Trade and Development warned that a full-fledged global economic recession "seems unavoidable" because of  deepening instability in international financial, currency, and commodity markets coupled with growing reliance on restrictive monetary polices the world over.

Faced with an international economy teetering on the brink of recession, countries would have to adopt "prudential regulations" to arrest the speculative bubbles, a "code of conduct" to keep the volatile exchange rates under proper alignment, and income-generating policies, Unctad's chief Supachai Panitchpakdi told reporters.

He cautioned about capital flowing "uphill" from poor to rich countries as well as the "spectre of inflation", arguing that developing countries would have to adopt appropriate "growth-oriented economic policies".

The UN agency said countries should not take recourse to overly restrictive policies that could scupper economic growth.