The prospect of a double-dip recession is growing across much of Europe, putting the global economic recovery in greater peril, economists warn.
Slowing consumption in the developed world, meanwhile, is compounding the problems and intensifying pressure on global trade, the price of oil, stocks and bonds.
"The world financial situation is immensely precariously balanced, particularly so in Europe," said Douglas McWilliams, the chief executive of the Centre for Economics and Business Research, based in London.
"I do not believe we're heading for a whole world double-dip recession, but parts of the world certainly are," he said. "Much of Europe is and the UK has a one-in-three chance [of doing so]."
Brent crude prices have fallen by 4 per cent this week to US$112 a barrel on poorer-than-expected consumer spending and manufacturing numbers out of the US. Stock markets in the US also fell sharply, and the leading MSCI Emerging Markets stock index dropped 4 per cent over Tuesday and Wednesday.
The MSCI Asia stock index, which excludes Japanese companies, ended yesterday down 2 per cent. The UK's FTSE 100 index fell 1.7 per cent in late trading.
The yen also fell sharply against the dollar after Japan's central bank intervened yesterday to weaken the currency and promote exports. The dollar and euro weakened in late trading against other major currencies. And gold, a traditional haven asset, reached record highs for the second day in a row, hitting $1,679.75.
With the US in cutback mode - a bill to raise the country's $14.3 trillion (Dh52.52tn) debt ceiling this week included more than $2.1tn in spending reductions - Omar Al Juraifani, a financial analyst at Dar Al Riyadh in Saudi Arabia, said conditions in the US would probably worsen in the second half of this year.
Government spending cuts "will affect employment in US markets", he said, exacerbating an unemployment rate already above 9 per cent.
"That will affect industrial companies [and lead to] less production, less export and less money coming in," he said.
The consequences for world trade could be huge. Trade volumes have surged back to above pre-financial crisis levels since bottoming out in 2009, according to an Organisation for Economic Cooperation and Development index, but the health of global commerce is dependent largely on demand from hard-pressed consumers in the US and Europe.
Redwan Ahmed, a shipping analyst at EFG-Hermes in Dubai, said there was little indication as yet that global trade was taking a turn for the worse, but sagging US demand presented a challenge. He said the Middle East was partially insulated from the US by its strong trade links with Asia and Africa. "Weak demand from the States is obviously negative, but intra-Asia, Middle East and Africa demand has been solid and that's making up the difference for the time being."
In anticipation of lower demand for Asian goods, 15 of the world's biggest container shippers delayed a plan to place a peak-season surcharge on shipments to the US. The Transpacific Stabilization Agreement put off the $400-per-container surcharge for two months, the group said yesterday.
Another concern in the wake of troubling US data is the long-term risk of a dip in oil prices, which have stayed above $100 a barrel for most of this year. Keeping oil prices high without endangering demand is a priority for the Gulf's oil-producing nations.
Barclays Capital, one of the world's biggest investment banks, is already cutting estimates of oil demand growth this year and next because of economic trouble in the US and elsewhere, according to a Reuters report. Barclays is cutting demand forecasts to an increase of 1.1 million barrels a day, the report said, down from an earlier prediction of 1.56 million barrels.
Jean-Michel Saliba, an economist at Bank of America Merrill Lynch in London, said any prolonged global slowdown could also produce a cut to oil price forecasts.
"We had our forecast for 2012 set at over $110 [per barrel] for Brent, but obviously a major part of that assumption is also that growth is quite robust," he said.
The US economy grew at a slender 0.4 per cent annual rate in the first quarter, according to the latest commerce department figures, and registered 1.3 per cent annualised growth in the second quarter.
Oil prices will have to "come down quite a bit" before they cause any real problems for Gulf countries, Mr Saliba said. Investors are also taking slightly more confidence in Dubai as the local stock market index rose yesterday by 0.9 per cent and the risk of default implied by credit default swap prices hit an almost two-month low, according to Bloomberg News figures.
The European Central Bank yesterday kept interest rates at 1.5 per cent, as had been widely expected. After the announcement, Jean-Claude Trichet, the bank's president, acknowledged the difficulties faced by Italy and raised the possibility that the bank could buy government bonds to prop up prices, an intervention it used in the past to help Greece.