"This Economic Outlook represents a substantial downward revision from just a few months ago: many of the downside risks previously identified have materialised. The financial turmoil that erupted in the United States around mid-2007 has broadened to include non-bank financial institutions and rapidly spread to the rest of the world. Following the collapse of Lehman Brothers in mid-September, a generalised loss of confidence between financial institutions triggered reactions akin to a "blackout" in global financial markets. Spreads in credit and bond markets surged to very high levels, paralysing credit and money markets. "Prompt and massive policy action to restore confidence and provide liquidity appears to have successfully limited the period of panic, but the need for financial institutions to operate with less leverage and to repair their balance sheets remains. This process of adjustment will take time and impair the flow of credit, and is the key factor weighing on activity going forward."
Comment: Recession means belt-tightening in the OECD rich nations' club. For people living on a dollar and a quarter a day, it often means disaster and death. Those people represent one out of six of the world's population. Indeed, half the world's population lives in such extreme poverty that there is no slack to take up when their normal bad times get even worse. JAD
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