Europe is better placed than the US to weather the coming economic downturn, the International Monetary Fund said today.

The world body said that Europe was likely to see stronger domestic demand than the US in the year ahead as its consumers were less exposed to weakness in housing markets and less reliant on borrowing.

Michael Deppler, the head of the IMF's European Department, added that the euro had not risen to an uncomfortable level. "The current account is roughly balanced and exports are doing relatively well."

His comments are at odds with the bombastic approach of President Sarkozy of France, who last week raised the spectre of "economic war" caused by the decline in the dollar against the single currency.

Exchange rates were one potential risk to the European economy outlined by the IMF, along with tighter credit and a surge in oil prices.

But Mr Doppler said that the slowdown ahead would probably only knock half a percentage point off GDP growth.

"To my mind this is a reflection of the more resilient nature of the situation in European companies relative to the US," he said.

The IMF said that better risk assessment models, transparency and management of liquidity would all strengthen the European economy against the risk of a fresh tightening of the credit squeeze.

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