UK downturn is mirrored globally

By Andrew Walker
Economics correspondent, BBC World Service

The "R-word", recession, is back with a vengeance in the UK.

Mervyn King and Gordon Brown both say recession is on the way

The Prime Minister and the governor of the Bank of England have both used it.

The forthcoming UK GDP, or gross domestic production, figures will show a weak performance.

So there must be something in it, and the gloom is not confined to Britain.

The mood in global financial markets now is in stark contrast with what it was after the banking rescue packages were announced by a succession of governments earlier in October.

Then, there was an almost audible sigh of relief.

A banking calamity had, it seemed, been averted. That may well turn out to be true.

Nonetheless, the relief has dispersed quickly, like a light mist, and the view of wider economic problems that has been exposed is not pretty.

Jobs lost

An increasing number of commentators in the United States are taking it for granted that the country is in or on the brink of a recession.

What's the real impact of the economic slowdown? BBC News is taking the temperature across the UK in a special day of coverage Special report: The downturn

The International Monetary Fund's latest assessment of the world economic outlook says the major advanced economies - a group that includes the US, Japan, Britain and the large continental European countries- are already in or close to recession.

The evidence is mounting, and there were already plenty of signs before the credit problem mutated into a full blown crisis last month.

In the US, more than 750,000 jobs have been lost this year.

Unemployment is on the rise. Some 9.5 million are classified as unemployed.

The number of people who want to work is even higher - people not actually looking for work are not classed as unemployed in these figures.

The unemployment rate is 6.1% of the workforce.

That is still well short of the high of nearly 11% it reached in 1982, but the rate has risen and there is little doubt that it will climb further.

Spreading problem

The financial crisis has its roots in the US and the excessive expansion of house building and of credit to buy homes, but the economic consequences have long spread beyond American shores.

Japan is probably in recession. Flagging exports to the US are part of that story but consumer demand at home is also weak.

The big European economies are also looking at a period of weak economic growth at best.

Some European countries have had their own housing and credit booms that are now going into reverse.

Britain, certainly, but Spain and Ireland too, are likely to face recession or are already doing so.

Many Central and Eastern European countries have had such booms that have now gone into reverse - the Baltic Republics: Estonia, Latvia and Lithuania for example.

Crisis focus

Other countries have banks and other businesses that have borrowed heavily in foreign currency.

As their own currency falls, the burden of that foreign debt increases and so does the risk of defaults.

That is why Hungary is in difficulty.

Indeed, there is a queue of countries in negotiations with the International Monetary Fund (IMF), seeking emergency loans.

Hungary, Iceland, Ukraine, Belarus and Pakistan are all talking to the IMF.

These countries all have their own home-grown problems, including rapid credit growth, overseas borrowing and deficits in their international balance of payments.

But it has been the international crisis that has brought them into focus.

Developing countries across the board have been affected by international investment funds selling shares and bonds to bring their money home to invest in the safety of assets such as American government debt.

And yes, the US may be a far bigger debtor than any developing nation, but it is still seen as presenting no risk of failing to repay.

Others have been affected by falling prices for the commodities they export, for example Brazil and soya or Russia and oil.

Risky rescue

Will China come to rescue? Its growth has slowed to a still remarkable 9%, but there are signs of it being hit by events in overseas markets it sells to.

The Chinese consumer is a growing economic influence, but is it enough to offset the problems in export markets? That is looking like quite a challenge.

The developing world's financial markets have been hit very hard by a crisis that started elsewhere, but will it drag them into recession too?

It is certainly possible, and it is very likely that most will experience slower economic growth.

But many are in much better shape than they were in the wave of developing country financial crises of the 1990s and the start of this decade.

Fingers are very much crossed.