The International Monetary Fund said on Monday Chinese growth could almost halve next year as a global downturn sucks in the biggest emerging economy.
Japan reported its sharpest crash in business sentiment in three decades and China said its industrial output grew at the slowest pace since 1999, adding to evidence that a global downturn would last through next year.
Asian markets rallied despite the gloomy data, buoyed by expectations that the White House would step in to prevent the collapse of the "Big Three" U.S. automakers. But bleak forecasts from European carmakers and the fallout of an alleged Wall Street fraud held back European and U.S. stocks.
International Monetary Fund Managing Director Dominique Strauss-Kahn told a conference that growth in China, the world's fourth biggest economy and accustomed to double-digit growth rates, could fall to five percent next year from 9.7 this year.
"We started with China at 11 percent growth, then 8, then 7, then China will probably grow at 5 or 6 percent," he told a conference in Madrid.
"The possibility of a global recession is real, we realise something must be done."
He said the world needed stimulus measures of around 2 percent of its GDP — $1.2 trillion — to reduce the risk of a damaging global recession, and that the global financial sector must share wealth around more broadly.
FEARS OF UNREST
"If we are not able to do that then social unrest may happen in many places, including advanced economies," he said.
"The good news, with some exceptions, maybe a lot of exceptions — we can see the beginning of the recovery end of 2009, beginning of 2010, but there are a lot of downside risks."
China in particular fears unrest if growth falls below the 8 percent it says it needs in order to create enough jobs for the millions of people moving to cities from the countryside.
Its annual industrial output growth slowed to 5.4 percent in November — the weakest figure in at least nine years for a non-holiday month and down from 8.2 percent in October.
"Next year's employment market will be very serious, affected by the international financial crisis," Xinhua quoted Chinese President Hu Jintao as saying.
The Bank of Japan's tankan survey gauging manufacturers' sentiment in the world's second largest economy number fell to minus 24, slightly worse than expected, from minus 3 the previous quarter. It was the biggest fall since the oil crises of the 1970s and the bleakest outlook since 2002, when Japan was recovering from a slump after a banking crisis.
The December survey pointed to more economic gloom ahead.
Bank of Japan Governor Masaaki Shirakawa told the Financial Times the economy might shrink in the year to March 2010, where the bank previously expected a slim recovery.
Last week's collapse of auto bailout talks in the U.S. Senate sent world markets reeling.
Investors fear a failure of any of the automakers would exacerbate a U.S. recession and drag other companies under.
CARMAKER WARNINGS
President George W. Bush told reporters aboard Air Force One on Monday that while some funds earmarked to shore up the U.S. finance industry could be diverted to automakers, no announcement was imminent.
Over the weekend carmakers elsewhere produced dire warnings about the state of their sector.
Martin Winterkorn, CEO of Europe's biggest carmaker, Germany's Volkswagen, told Monday's Sueddeutsche Zeitung newspaper that its sales could fall about 10 percent next year in a global market expected to fall around 20 percent.
The joint general secretary of Britain's Unite trade union, Tony Woodley, said up to 40,000 car industry jobs could go in Britain in the next four weeks unless the government intervenes.
Japanese media said the world's largest carmaker, Toyota Motor Corp, was set to report a loss of about 100 billion yen ($1.11 billion) for October-March.
Robert Bosch, the world's biggest car parts firm by sales, said it planned to cut up to 2,000 jobs.
"We have not touched the bottom yet," said Carlos Ghosn, chief executive at French maker Renault and its Japanese ally Nissan Motor.
French President Nicolas Sarkozy was meeting Ghosn and Christian Streiff of PSA Peugeot Citroen on Monday, after promising to help the carmakers if they promised not to move jobs abroad. Renault, PSA and others are shedding thousands of jobs in France and elsewhere in Europe as they cut output.
The Sunday Times said Britain was considering low-cost loans or loan guarantees for car companies to try to revive sales.
In Sweden, Electrolux, the world's second-biggest home appliances maker, said it would cut more than 3,000 jobs globally.
CALL FOR DISCIPLINE
While markets looked for more state support for the global economy, European Central Bank President Jean-Claude Trichet urged European policymakers not to tear up eurozone rules on public deficits and debt levels when launching rescue packages.
Fiscal indiscipline could threaten already fragile economic confidence and increase the nervousness of capital markets about governments' funding needs, he told the Financial Times.
In the financial sector, where bad loans were at the root of the slide into recession more than a year ago, the list of banks with exposure to an alleged $50 billion fraud surrounding Wall Street trader Bernard Madoff grew.
A report in the Financial Times said HSBC Holdings Plc had emerged as one of the largest victims, with potential exposure of about $1 billion.
Royal Bank of Scotland said its loss could amount to some 400 million pounds ($595 million) and Natixis of France said it had as much as 450 million euros ($605 million) of exposure.
The Wall Street Journal reported on Saturday that the depth of the U.S. recession was persuading President-elect Barack Obama's team to expand a stimulus package to $700 billion to $1 trillion over two years, far more than previous estimates.
More immediately, economists expect the U.S. Federal Reserve to cut its benchmark interest rate to a record low on Tuesday.
Its Fed funds rate currently stands at 1 percent and markets expect at least a half a percentage point cut.
Japan's Nikkei 225 gained 5.2 percent and the Hang Seng rose 2.0 percent.
