Global Markets Plunge on Economic Recovery Doubts

Posted September 22nd, 2011 at 12:16 pm (UTC-5)
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Global stock markets plunged Thursday in reaction to the U.S. central bank's dim prospects for the world's largest economy and fears that its latest move to boost the economy will not prove effective.

Asian markets dropped sharply, major European exchanges fell close to 5 percent or more, while U.S. stock markets also plummeted in midday trading. The price of crude oil fell nearly 5 percent to its lowest point in a month on worries there would be less demand with a global economic downturn.

Even the price of gold, often viewed as a safe haven for investors, skidded, but U.S. bonds were still viewed favorably as a protected investment.

The managing director of the International Monetary Fund, Christine Lagarde, said the world's biggest economies need to strengthen their collective efforts to restore stability to world financial markets. She said that global leaders have not exhibited the same sense of momentum and spirit they did to resolve economic difficulties as they did at the height of the recent recession.

Lagarde said the risk against global economic growth has “increased markedly,” but added that so far world financial markets have ignored “bold” corrective efforts taken by European countries to cut their government debt.

The global stock selloff began after the U.S. central bank, the Federal Reserve, said Wednesday it sees “significant downside risks” in the outlook for the American economy.

The Fed said a complete economic recovery is years away, and announced a plan to sell $400 billion of short-term bonds and buy long-term Treasury notes in an effort to keep interest rates low and boost economic growth. The central bank's action had been expected.

Analysts said that the gloomy forecast for the U.S. economy, coupled with worries that Greece may eventually default on its international bailout loans, could lead to a new global downturn or at best continued sluggish growth.