WASHINGTON -- The global economy, after stumbling earlier this year as a result of currency turmoil and the financial collapse of Mexico, is now recovering and should perform respectably in 1995 and 1996, the International Monetary Fund predicted.


The IMF said threats to the economic output had lessened considerably since its last "World Economic Outlook" was issued in April. At that time, the dollar was hitting record lows against the Japanese yen and the Deutsche mark, and the Mexican economy was still reeling from the decline of the peso.


But since then, the dollar has recouped its losses and the Mexican economy has stopped its downward spiral.


Taking note of these developments, the IMF's new outlook released Wednesday predicted that the global economy would expand by 4.1 percent in 1996, the best showing in eight years. For 1995, the IMF put growth at 3.7 percent, slightly better than last year's 3.6 percent increase.


The IMF forecast was being published as the 179-nation organization and its sister lending organization, the World Bank, began their weeklong annual meetings.


"Overall, the world economy has proven quite resilient to the recent turmoil in financial markets," the IMF declared. "If policy shortcomings are addressed in a timely manner, there is the potential for robust growth with low inflation over the medium to longer run."


But the IMF warned that global financial markets could react adversely if countries fail to make timely adjustments. For the United States, the agency said it was critical that Congress and the administration come to agreement on a credible deficit-reduction program.


Republicans in the U.S. House of Representatives, who are pushing a program of $245 billion in tax cuts along with the goal of a balanced budget by 2002, were indirectly criticized by the IMF, which said the U.S. economy would benefit more from a bigger attack on the deficit.


"A more front-loaded program, which postponed the introduction of significant tax cuts until substantial progress toward a balanced budget had been achieved, would allow the economy to reap the benefits of increased saving and lower interest rates more quickly and surely," the IMF report said.


The overall global growth forecast was little changed from the spring projections, but that was because faster-than-expected growth in emerging Asian nations had masked weakness in all of the major economies.


For the United States, the IMF predicted growth this year of 2.9 percent, compared to 3.1 percent last year, and 2 percent in 1996. That forecast is in line with the administration's outlook for this year but significantly lower for 1996.


The gap was most obvious in Japan, where the IMF now forecasts growth this year of just 0.5 percent, the fourth straight year of a subpar performance.