A leading international economic organization on Thursday said the world's developed economies are in recession and are likely to contract next year.
The Paris-based Organization for Economic Cooperation and Development said gross domestic product is likely to decline by 0.3 percent in 2009 in its 30 member countries, with the U.S. contracting by 0.9 percent, Japan by 0.1 percent and the euro currency area by 0.5 percent.
The latest forecasts represent a sharp downgrade since the last one in June, when the organization forecast member country growth of 1.7 percent in 2009 and indicated that the worst of the financial crisis may have passed.
Meanwhile, China's industry output growth waned to its weakest in seven years, reinforcing evidence the financial crisis is plunging the world into a painful downturn.
Seeking to limit the fallout from a crisis that began when the U.S. housing market collapsed more than a year ago, Japan said it would offer up to $100 billion to the International Monetary Fund (IMF) for emerging economies.
'Long-lasting economic crisis'
The impact of the worst financial conditions in 80 years was also felt sharply in Europe's largest economy, Germany, which contracted by 0.5 percent in the third quarter, putting it in recession for the first time in five years.
"We are going to have to face up to a very difficult and long-lasting economic crisis," Germany's Deputy Economy Minister Walther Otremba told Reuters.
Analysts agreed with that grim forecast.
"The headwinds of the financial crisis and the global economic slowdown are blowing right in the face of the German economy," said Carsten Brzeski of ING Financial Markets.
"Even more worrying, the full impact of the financial crisis still has to unfold," he said. "If you think today's numbers are already bad, just wait for the next quarter."
In China, which has unveiled a 4 trillion yuan ($586 billion) stimulus package, annual industrial output growth slowed to 8.2 percent in October, its weakest showing since Oct. 2001, as the global downturn took its toll.
Job cuts, tumbling markets
Among corporates, British telecoms company BT Group said it was cutting 10,000 jobs at home and overseas.
Stock markets tumbled again in Asia. Tokyo shares slid 5.3 percent and the price of oil hit a 22-month low at $55 a barrel on worries that a recession will curb demand.
China was a rare bright spot, shares ending up 3.7 percent on hopes that the stimulus package would include big spending on housing and railway construction.
Shares in Europe edged higher, breaking a two-day losing run.
Governments around the world have pledged around $4.6 trillion for bank bailouts, credit guarantees and fiscal spending to contain the damage from the financial turmoil.
Leaders of the G20 industrialized and emerging nations will gather in Washington on Friday to decide on the next steps in tackling the crisis.
Japan is prepared to offer foreign reserves worth up to $100 billion to the IMF if the Washington-based lender needs extra funds to help emerging economies, a government source said on Thursday.
Prime Minister Taro Aso will make the proposal at the G20 summit, the source told Reuters.
"Investors are now looking to the G20 Summit this weekend, with hopes of some further policy action," Patrick Bennett, Asia FX and rates strategist at Societe Generale, wrote in a note.
Awkward time for summit
However, the summit falls at an awkward time politically as President Bush prepares to leave office.
Bush will travel to Wall Street on Thursday to outline his views on the financial markets.
"We should fix the problems we have rather than dismantle a system that has improved the lives of hundreds of millions of people around the world," White House spokesman Carlton Carroll said in previewing Bush's remarks.
Some leaders have called for big reforms to the financial system, but the Bush administration has been more cautious.
The president will "emphasize that free market capitalism — especially free trade — is still the best system to create economic growth and lift people out of poverty," Carroll said.
Washington has backed away from using a $700 billion bailout fund to cleanse bank balance sheets of bad mortgage debt.
U.S. Treasury Secretary Henry Paulson on Wednesday said he preferred instead to focus on buying stakes in banks to encourage them to increase lending.