(BRUSSELS) - The eurozone should escape a recession but growth is expected to fall significantly, the International Monetary Fund said in a report published Monday.

"Growth will likely slow substantially this year before reaccelerating" next year, the report from the IMF's executive board said.

The "central scenario" underlying IMF, EU and European Central Bank projections "is for a significant slowdown, but no recession or prolonged period of sluggish activity," as seen in 2002-2005 the report said.

The IMF predicted 1.7 percent growth in the 15-nation eurozone this year and 1.2 percent in 2009.

Those figures include "a deceleration in the course of 2008 and a re-acceleration toward trend during 2009," it added.

Last year eurozone growth was recorded at 2.6 percent.

Eurozone inflation. at record highs due to high energy and food prices, "should fall appreciably from its current levels, although risks are high."

Eurozone inflation nudged higher in July to a record 4.1 percent, according to a first official EU estimate last week.

With oil trading at records close to 150 dollars a barrel this month, eurozone inflation hit the highest level since the bloc was formed in 1999.

The IMF here too sees a return to norms next year moving "to below two percent some time in 2009," bringing it back in line with ECB targets.

The IMF admitted that the ECB itself and the EU find this target "slightly optimistic."

The Fund bases its predictions on energy and food prices stabilising next year.

However an inflationary spiral, fuelled by high wage increases as consumers feel the pinch, remains a threat and therefore proactive measures are required, the IMF said in its report.

IMF directors were split on the some of the tactics.

Some called for interest rates to be kept on hold while others emphasised more "the importance of vigilance in the face of the upside risks to price stability," especially in the event of accelerating wage settlements.

The European Central Bank will hold its monthly meeting on Thursday to fix interest rates.

Economists were predicting that the ECB would not make a move on rates after raising its main lending rate to 4.25 percent last month to stem inflation.

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