Global expansion is likely to slow if existing financial conditions remain difficult, according to the International Monetary Fund's (IMF) Global Financial Stability Report.

The IMF warned that downside risks to growth have increased significantly due to credit and market risks outlined by the IMF in April and realised through the recent turmoil in credit markets.

According to the IMF, the financial system needs to make five fundamental changes.

"The first is the important role of uncertainty and the need for accurate and timely information to properly price risk and assess creditworthiness," the report said.

"Second, there is a need to understand how securitisation contributed to the current situation, and how the incentive structure may have weakened credit discipline through the supply chain.

"Third, there is a need to examine the risk analysis of credit derivatives and the role of ratings agencies.

"Fourth, the management of liquidity risk requires more consideration.

"Finally, the perimeter of risk consolidation for banks must be set wider than the usual accounting or legal perimeters, to reflect contingent liabilities and reputational risk."

IMF managing director Rodrigo Rato said that the biggest impact of the crisis will be on the US economy in 2008.

According to Reserve Bank of Australia deputy governor Ric Battellino Australia's expansion will remain strong.

Initially the global credit shakeout "was quite brutal, but in the last couple of weeks I think we have seen some return to normality in financial markets,'' Battellino said in a speech to a banking conference in Melbourne yesterday, Bloomberg reported.

The Australian stock market ended up at an all time highs for a second successive session, with the S&P/ASX 200 adding 31.5 points to 6483.