WASHINGTON,(Reuters) – Global economic imbalances are expected to narrow at a faster rate than previously forecast but more needs to be done to rebalance the world economy, according to International Monetary Fund research on Tuesday.

“Global economic imbalances appear to have peaked in 2006-07 and are now projected to narrow faster than earlier forecast, but more remains to be done to correct a worrying disequilibrium in the world economy,” the in-house IMF Survey magazine said, citing the research.

With market confidence fragile and economic imbalances still large, risks of a disorderly adjustment were still a “clear concern”, the IMF said.

It said recent turmoil in global financial markets, triggered by a crisis in the U.S. subprime housing market, illustrated how quickly and unexpectedly markets could turn.

Last year the IMF led discussions among five major economies — the United States, the euro area, Saudi Arabia, China and Japan — to reduce global imbalances skewed by a gaping trade gap in the United States and massive surpluses in China and oil producers such as Saudi Arabia.

The IMF said slower U.S. growth and a weaker dollar had helped shrink the U.S. current account deficit faster than expected to 5.5. percent of gross domestic product in 2007.

In countries with surpluses, there had also been policy advances to address the imbalances, the IMF said.

But further progress was needed, including making China’s yuan currency more flexible, a move the United States has pushed for to help reduce its big trade deficit with China.

The IMF said that growing inflationary pressure in Saudi Arabia “suggests maintaining spending priorities” in key areas such as infrastructure to relieve supply bottlenecks.

In the euro area, large losses by European banks linked to the U.S. subprime crisis illustrated the need to deepen financial integration but also to strengthen financial stability arrangements, it said.

In Japan, economic reforms were needed to stoke economic growth and strengthen domestic demand.

In the United States, slowing economic activity was challenging progress in reducing the fiscal deficit, the IMF said, adding that timely fiscal stimulus to boost the economy should be kept “strictly temporary and targeted”.

It cautioned that volatile oil prices, which rose above $100 per barrel on Tuesday, could slow the narrowing of imbalances, given strong demand from emerging economies and supply concerns.

It said oil price spikes could add to imbalances by leading to wider deficits for importers such as the United States and larger surpluses for oil exporters such as Saudi Arabia.