From The Times
February 28, 2009

Fear of global depression rises as US reveals true extent of decline




An American flag flies on Capitol Hill

The severity of the US recession, emphasized by details of the GDP data, inflamed worries of a deeper and more protracted one

Gary Duncan, Economics Editor

The US was hit by its most brutal slump in a quarter of a century at the end of last year as consumers and businesses reined in spending, fuelling fears that the world recession may be deeper than already feared.

Drastic revisions to official GDP figures that were far larger than expected showed the world's biggest economy was shrinking at an annual rate of 6.2 per cent in the final quarter of last year.

The pace of contraction, the worst since early 1982, was much worse than the 3.8 per cent rate initially estimated and the news jolted markets worldwide, rekindling anxieties over the threat of a global depression.

On Wall Street, the S&P 500 index of US blue-chip shares fell by more than 1 per cent by early afternoon, while the Dow Jones industrial average sank by about 0.5 per cent. The overhaul of the US figures means that America suffered an even sharper decline in the fourth quarter than Britain, which many economists have warned was set to bear much of the brunt of the global downturn.

On an equivalent basis, US GDP plummeted by 1.6 per cent in the quarter, compared with a plunge of 1.5 per cent suffered by the UK, and a matching 1.5 per cent drop initially reported for the 16-nation eurozone.

The news came as Gordon Brown prepares to fly to Washington for White House talks on Monday with President Obama on the state of the global economy.

Mr Brown will be the first leader of a big European economy to meet the President since his inauguration last month. The focus of their meeting will be progress in the increasingly frenetic efforts by Western leaders to combat world recession.

Mr Brown will discuss with Mr Obama preparations for the summit of leaders of the G20 group of key global economies to be held in London in April.

Ahead of the summit and a gathering of G20 finance ministers next month, economists in the City and on Wall Street said that yesterday's dire US figures set the stage for equally terrible news over the key economy's performance since the start of the new year. Rob Carnell, of ING Financial Markets, forecast that the first quarter would see America suffer “another horror storyâ€