Around the World, Pessimism About the Economy

More signs of the economic slowdown appeared Wednesday in Asia andEurope.

In Europe, the Bank of England offered a pessimistic outlook for therest of the year, saying that it expected inflation to hit 5 percentbecause of energy and food pricesand the economy to stagnate. And in Asia, Japan appears to be flirtingwith a recession, government data showed Wednesday.

“The numbers were awful,” Hideo Kumano, chief economist at Dai-ichiLife Research Institute in Tokyo, said after the Japanese governmentreported that the grossdomestic productshrank at an annual 2.4 percent rate in the three months that endedJune 30. “Things are going to be very tough in the second half of theyear.”

Even as commodity prices are beginning to ease, the credit andhousing crises in the United States, coupled with the highest inflationin a generation, are weighing on consumers.

In Europe, where new figures on the overall economy are to bereleased on Thursday, analysts are expecting more bad news as well.

“It may still just be summer, but there is a feeling of chill in theeconomic air,” Mervyn King, the governor of the Bank of England, saidWednesday after the central bank issued its pessimistic outlook. Hesaid the British economy was going through “a difficult and painfuladjustment.”

The euro zone, which six months ago appeared to be sailing clear ofAmerica’s problems, now appears to have been ensnared. A poll ofeconomists by Reuters predicted that the new reports would show thatthe region’s economy fell 0.2 percent in the second quarter comparedwith the previous quarter. First-quarter growth was 0.7 percent.

As for Japan, Mr. Kumano said the most serious threat came from asharp decline in personal income, which fell 4 percent. He said he nowexpected growth in the fiscal year, which runs through next March, tobe 0.6 percent at best, down from a previous forecast of 1.2 percent.

The rest of Asia, including China, will not be immune to theslowdown in the major economies, he said.

The InternationalMonetary Fund,which considers growth of 3 percent or less in the world’s grossdomestic product to be a recession, estimated July 17 that the globaleconomy would grow 4.1 percent in 2008 and 3.9 percent in 2009, slowingfrom 4.5 percent growth in the first quarter of 2008. But many privatesector economists say those forecasts look overly optimistic.

“It’s a race against time” whether the global economy ends up in arecession, Gilles Moëc, an economist at Bank of Americain London, said. “Japan and Europe had been seen as protected from theU.S. slowdown. Strangely enough, it seems that Europe and Japan arepaying the price now.”

He said unlike in the United States, where the Federal Reserve hassharply cut interest rates since the start of the credit crisis, to 2percent from 5.25 percent, the policy response among other centralbanks might not have been aggressive enough to support growth.

The Bank of Japan, which has not raised its main rate target above0.5 percent since 1995, has “exhausted its room to maneuver,” he said,while the Bank of England and the European Central Bank,with key rates at 5 percent and 4.25 percent, respectively, have chosento focus on inflation rather than faltering growth.

There are some positive signs. Mr. Moëc said the recent decline inthe price of oil and other commodities provided grounds for hope thatthings would begin picking up by the end of the year. But oil pricesrose more than $2 a barrel on Wednesday after falling to about $113 onTuesday, down from a peak above $147 a barrel last month.

If prices for oil and other commodities fall, companies may remainconfident enough about the outlook to avoid serious cuts in payrolls,and the worst will be avoided in the major economies, Mr. Moëc said.

The I.M.F. made its forecast in July when oil prices were at theirpeak, Mr. Moëc said, noting that Bank of America’s own forecasts calledfor 2008 growth of 3.2 percent and 2009 growth of 3 percent.

“Everything depends on oil,” Mr. Moëc added.

The United States remains a question mark. The American economygrew at a 1.9 percent annualized rate in the second quarter, adisappointing performance considering the billions of dollars ofgovernment stimulus checksthat went out to consumers during the period.

“We don’t really see an upturn yet,” the chief executive of General Motors,Rick Wagoner,said Wednesday during an interview in Bangkok, adding: “To be honest,the way the market has run in the last couple of months, I think it’sfar better to be conservative than to be surprised.”

In Tokyo, officials were optimistic, despite Wednesday’s data. Theeconomics minister, Kaoru Yosano, said the weakness resulted mainlyfrom external factors like high oil prices, but said the economy wouldbounce back.

“Even though the economy contracted in April-June, it would be moreaccurate to think that it won’t last long,” Reuters quoted him assaying.

Japan’s real G.D.P. fell 0.6 percent in the latest quarter comparedwith the first three months of 2008, the biggest decline since 2001.And unlike many Western banks, Japanese lenders appear to be inrelatively solid shape after a decade of restructuring, and a worseningeconomy may not weigh heavily on their balance sheets.

The slowdown is real enough for consumers.

“I lost three clients in June,” said Kozo Kimura, 40, a personaltrainer in Tokyo. “I’m at the end of the food chain and am easy todispose of.”