Stock markets got slammed again in the third quarter, as the U.S. financial crisis reverberated around the world. All told, world markets...

Share story

Analysis |

Stock markets got slammed again in the third quarter, as the U.S. financial crisis reverberated around the world. All told, world markets lost $8.1 trillion, after an $840 billion loss in the second quarter, according to Standard & Poor’s analyst Howard Silverblatt.

On average, emerging stock markets, such as in Brazil and India, shed 28 percent, while developed markets, such as Japan and France, saw a 22 percent decline, according to S&P. The U.S. market fell 9 percent.

After an anemic 1.2 percent gain in the third quarter, the nation’s real gross domestic product is expected to decline for the next two quarters, according to economists with Global Insight.

Tightened credit conditions and reduced trade in the United States are having an impact around the world.

The world’s real GDP growth is expected to gain 3 percent this year, down from 3.8 percent last year, write Global Insight economists Nariman Behravesh and Sara Johnson.

The latest blowup in the financial markets could push the rate down even further to 2.5 percent or less in 2009, Global Insight economists say.

Even before the U.S. stock meltdown, European business conditions, such as purchasing-manager activity, were deteriorating, says David Malpass, president of Encima Global.

The European Central Bank raised interest rates to 4.25 percent in July from 4 percent in the second half of 2007, although Malpass expects cuts in the fourth quarter and the first half of 2009 to spur growth as the U.S. slowdown continues.

A sharp slowdown in China would only deepen the global slump, Malpass says. Still, China should be able to maintain a 9.8 percent growth rate for the year, down from 11.9 percent last year, he adds.

The U.S. economy won’t recover until the housing market stabilizes, the Global Insight economists say. They note consumer spending is falling in response to job losses and lower home and stock prices.