Both the International Monetary Fund (IMF) and European Commission (EC) released reports downgrading growth forecasts stressing that output growth had slowed and financial conditions are likely to remain tight for a longer period.
Over the last week, the mood changes have been so quick from emerging market government bonds rallying to bad economic data from the US sending markets sharply lower.
The main themes that dominated a worsening of consumer sentiment are mainly around:
a) Financial crisis has continued to deepen in the rich world, with highly indebted countries like the UK particularly vulnerable
b) Commodity prices show signs of further weakness and is hurting exporters such as Russia and countries in Africa dependent on selling materials overseas
c) General souring of sentiment has hit all emerging markets especially those dependant on foreign investors to finance current account deficits
Further risks to the economy
The big danger is that a severe global economic downturn creates a massive wave of credit losses on both consumer and corporate loans, further destroying and eroding the already shrunken capital bases of financial institutions. This would once again require more rounds of large capital infusions by the governments of the world.
The big question to ask is: Will the election of the new American president signal to the market that powerful forces of natural and policy-induced help is on the way and should arrive before the scenario of a severe global economic downturn materialise...
Eric Tan, London
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