Recession risk 'deepening'

The slight recovery in Asian markets came hours after Wall Street shares plunged on more signs of US economic weakness.

The Dow Jones Industrial Average closed down by 5.3 per cent and the Standard & Poor's index fell six per cent in Thursday trading, after the US labour department said new unemployment claims had hit a 16-year high.

"The domino which is pushing all of this forward is the enormous level of debt compared to incomes all around the world"

Steven Keen, economics professor in Australia

According to figures for the week ending November 15, about 542,000 more Americans are now looking for work.

US Democrats said that a $25bn financial bailout for the car industry had not been approved and pressed the firms for more details on how they planned to restructure.

Martin Slaney, the head of derivatives at GFT Global Markets, said it was "one car crash after another for the markets right now".

"The risk of global economic recession is deepening by the day. The prospect of "the Great Depression 2" is now a genuine one and is plain scaring investors," he said.

World oil prices stood near $50 on Friday, after touching lows unseen in more than three years.

In afternoon trade New York's main futures contract, light sweet crude for January delivery rose 67 cents to $50.09 a barrel.

Feeling the pain

Even some of the world's most established financial firms are finding that they are not immune from the global economic crisis.

Citigroup, a major financial firm based in the US, is considering selling part of the company or merging with another firm in the face of severe losses to its stock price, a source said.

But the company said it has a "very strong capital and liquidity position", while Saudi Prince Alwaleed bin Talal, a key investor in the bank, said on Thursday that he plans to increase his stake.

New unemployment claims in the US have hit a 16-year high [GALLO/GETTY]
As people in the US rein in their personal spending in the bleak economic climate, Asian countries have found that their exports are falling.

George Bush, the US president, will attend the Asia Pacific Economic Co-operation forum in Lima, Peru, on Friday in an attempt to expand global commitment to financial reforms.

Earlier, the White House reacted swiftly to the grim news about the US job market.

Bush will sign a new extension of unemployment benefits following its approval by congress on Thursday, Dana Perino, White House spokesperson, said on Thursday.

"The president believes it would be appropriate to further extend unemployment benefits, and he would sign the legislation now pending in congress," she said.

Last month, the US unemployment rate jumped to a 14-year high of 6.5 per cent, with 10.1 million people looking for work, an increase of 2.8 million over the past year.

Deflation worries

The retail sector worldwide has been badly hit, with high street stores slashing prices in an attempt to entice shoppers over the holiday season.

"The domino which is pushing all of this forward is the enormous level of debt compared to incomes all around the world," Steve Keen, associate professor of economics at University of Western Sydney, told Al Jazeera.

"That debt is simply beyond the level where the physical economy can service it, and that is ultimately what is driving down prices and economic performance."

While falling prices across the board could benefit consumers, analysts have warned they could hurt corporate profits and cause deflation.

Some economists believe that a short-term fall in prices could encourage consumer spending and boost the stagnant economy. However, a longer period of deflation could encourage consumers to hold on to their cash, in an attempt to get the most for the money - fuelling a recession.