23 Sep 2011

Stock markets fall on global economy fears

7:04 pm on 23 September 2011

World stock markets have tumbled as a series of warnings on the prospect of a slowing global economy alarmed investors.

The head of the International Monetary Fund, Christine Lagarde, said the economic situation is entering a "dangerous place".

Ms Lagarde said the main problem dragging down global growth was heavy government and household debt. Advanced economies needed to proritise balancing their budgets and it was essential that banks were supported.

World Bank president Robert Zoellick said the world's economy was in a danger zone.

While he did not believe a double-dip recession was likely, Mr Zoellick warned that Europe, Japan, and the United States must address their economic problems before they become problems for the rest of the world.

Investors had been unnerved by the US Federal Reserve's statement on Wednesday that the American economy faces significant risks.

The central bank has launched a $US400 billion programme to tackle weakness in the American economy, buying back bonds maturing within three years and swapping them for longer-term debt.

Poor data from China, Germany

Adding to the concerns, new data from the China - the world's second largest economy - showed the manufacturing sector contracting for a third consecutive month in September.

In Germany, a survey showed business activity has come close to stalling this month as demand for its exports and domestic consumer morale flag.

New orders have fallen for the third month running, painting a gloomy picture for future growth in Europe's top economy.

The fall across world markets followed weeks of worries that Europe's debt crisis could trigger more widespread economic fallout.

In Europe, the UK FTSE100 dropped 4.7% on Thursday, France's CAC40 fell 5.25% and in Germany, the DAX fell almost 5%.

In the United States, the Dow Jones ended the day almost 4% lower, while Asian markets were substantially lower on Thursday.