Spectre of 2008 haunts world economy

Financial Fallout: Consumers, businesses and investors would lose trillions of dollars if the world falls back into recession only three years after 2008's financial crisis, economists say.

Fears mount of another financial crash just three years after the crisis in 2008, economists say. Above, the New York Stock Exchange.

Investors, businesses, consumers and sovereign nations have trillions of dollars staked on the recovery of the global economy.

Financial Fallout: Read The National's coverage of the global economic chaos

World view bleak but picture looks brighter in the Middle East Declines in markets are raising the likelihood of another global slowdown. If the world does lurch back into recession, economists say the MIddle East is in a better position to weather the economic storm. read article

Local tourism and retail at some risk Consumer spending is expected to remain buoyant across the Middle East should there be another economic slowdown across the world. Read article

UAE banks proactive on mortgages UAE lenders are starting to aggressively target homebuyers for the first time since US mortgage defaults sparked the 2008 global meltdown. read article

Asia may put GCC on slippery slope An economic slowdown threatens fuel demand, but Opec is likely to act if oil prices far too fall. read article

Small businesses can take shelter With the threat of a second global downturn looming large, both small businesses and investors have a lot to lose. read article

Threat to US and EU but Gulf set fair Financially, the region is in a better position to weather storms. read article

The world can ill afford another downturn as fears mount of another financial crash just three years after the crisis in 2008, economists say. If a downturn bites again, they say government finances across the globe would be severely strained, investors would lose money and slowing consumer demand would hamper business growth.

Oil prices would probably decline too, putting additional pressure on government budgets in the Gulf. And even if countries in Asia were able to weather such a storm sheltered by their low debt levels and healthy banking systems, that may not be enough to prop up oil prices already down by about 10 per cent since late last month.

"While Asian demand will be significantly stronger than in other parts of the world, we do not believe this will be sufficient to avoid declines," said Ross Strachan, a commodities economist at Capital Economics in London. Concern about the state of the global economy has risen recently as a result of sharp declines in markets during the past three weeks, coupled with mixed economic data from the US and Europe.

Standard & Poor's downgraded of the country's credit rating last Friday, sending world markets into their steepest drop since the downturn three years ago. Better than expected retail sales, which climbed in July by the most in four months, has not turned sentiment around.

Trouble has also been brewing across the Atlantic, where European leaders are at pains to solve a crippling sovereign debt crisis. French economic growth ground to a halt in the second quarter. The European Central Bank has resumed a bond-buying programme to prop up prices for Spanish and Italian government debt after instability threatened to spread to two of the continent's core economies. Worry about a downgrade of France's credit rating has only exacerbated tension in markets.

Clawing back from the abyss of another financial catastrophe is critical for the world's economy, said Dr Giyas Gokkent, the chief economist at the National Bank of Abu Dhabi.

A big part of making that happen, he said, hinged on whether Europe's fractured political alliance could withstand the most recent bout of economic ill health.

"If they could act with unity, I think they could sort out their problems," he said. "The issue is that it's not a single country like the US and therefore you have this problem where quite a few countries are vulnerable, they're running deficits, they have high debt levels, and there are other countries with a surplus. I'm not quite sure how that plays out, but I think if they were to remain united, they have the capacity to deal with the problems."

* with additional reporting by Tom Arnold, Gillian Duncan, Hadeel al Sayegh and April Yee