Slipping real economy leads to contagious recession

The financial industry took a hard hit but so did the real economy.

The world economy was expected to shrink between 0.5 percent and 1 percent in 2009, the first contraction in 60 years, the International Monetary Fund said this month.

According to statistics from the US Commerce Department, the American economy contracted at a staggering 6.2 percent pace at the end of 2008. It was the worst showing in a quarter-century and also the second consecutive quarterly contraction.

Japan's economy shrank at a 12.1 percent annual rate in the October-December quarter, the sharpest contraction in 35 years, and the third consecutive quarterly decline.

In Europe, the euro-zone economy contracted by a record 1.5 percent in the last three months of 2008, figures showed last month. It was also the third quarterly fall in a row.

Facing sharply falling exports, retreating investments and credit crunch, eastern European nations are also becoming volatile.

Amid the deepening recession, the unemployment rate in the main western economies keeps soaring.

A report from the US Labor Department showed the number of workers collecting state unemployment benefits surged 122,000 during the week ending March 14, from 5.44 million the prior week. That pushed the insured unemployment rate to 4.2 percent from 4.1 percent the prior week, the highest since May 1983.

Japan, Asia's largest economy, is facing its worst recession since World War II, and the country's major auto, electronics and other companies have slashed tens of thousands of jobs. Statistics showed that the unemployment population has continued to grow since last November.

A European Union report last month forecast employment growth in the region will turn negative in 2009, with the overall employment rate contracting by 1.6 percent, or some 3.5 million jobs lost. The average EU unemployment rate was set to increase by about 2.5 percent in the coming two years. The figure might hit 10 percent by the end of 2010 from 7 percent predicted for 2008, the report said.

Falling world trade and growing protectionism

The prolonged financial crisis and economic recession also dragged down world trade with emerging protectionism gnawing at the global economies.