The massive stimulus thrown at the US economy will produce a solid recovery by the middle of 2010, the International Monetary Fund said today but it warned that the worst of the crisis may still lie ahead.

In its annual consultation with the world's number-one economy, the Washington-based group said policymakers were correct to keep the stimulus flowing for now, but would need to turn their attention to the threat of yawning deficits once the crisis had passed.

"The combination of financial strains and ongoing adjustments in the housing and labour markets is expected to restrain growth for some time, with a solid recovery projected to emerge only in mid-2010," the IMF said at the conclusion of annual discussions with the US.

It pencilled in a contraction of 2.5% in GDP this year, with a muted expansion of 0.75% in 2010. Those forecasts are better than its April projection of a 2.8% slump this year and zero growth next year.

It said Washington's fiscal boost would lift US GDP by 1% in 2009 but only by a quarter as much next year. It warned that the outlook for the US economy was marked by an "unusual level of uncertainty", while a recovery could be clouded by further home foreclosures and falls in house prices along with rising unemployment.

If economic activity failed to pick up, the IMF said the Obama administration may need to consider further fiscal stimulus measures and the US Federal Reserve should keep interest rates at the current low.

It said that the federal budget deficit would average 9% of GDP over the next couple of years and the national debt would double to 75% of national income.

Speaking on a trip to Kazakhstan, Dominique Strauss-Kahn, the IMF's managing director, said he largely agreed with the conclusion finance ministers from the G8 nations reached at the weekend that the global economy was showing signs of stabilising after the worst financial crisissince the 1930s. "Their stance is that we are beginning to see somegreen shoots but nevertheless we have to be cautious. The large part of the worst is not yet behind us."

The European Central Bank warned in its latest Financial Stability Review that eurozone banks would probably need to write down a further $283bn (£174bn) this year and next on bad loans and securities.

The ECB estimated bank write-downs on the value of securities – or toxic assets – would total about $218bn from the start of the financial turmoil in 2007 to 2010, while bad loans would account for $431bn of write-downs. This amounts to a total of $649bn of bank write-downs caused by the crisis, with an estimated $366bn already announced.