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Figures published on November 16 showed a larger-than-expected fall in American industrial production, marking the longest period of decline since 1932. This weekend's meetings of the International Monetary Fund and the World Bank in Ottawa are taking place against a global economic background as grim as anyone can remember.

It's like reading tea-leaves: that's the verdict of Horst Kohler, managing director of the International Monetary Fund (IMF) on attempts to produce forecasts of the world economy at present. The immediate cause of Mr Kohler's frustration is the aftermath of the terrorist attacks of September 11th, which have sent the world economy into uncharted waters. But the anxiety of world-economy watchers is all the greater because those events made an already bad situation worse. A grim backdrop indeed for this weekend's meetings of the IMF and the World Bank, which were postponed from September.

A sharp reminder of how sharp the deterioration has been came on November 16th, when new figures showed that American industrial production fell by 1.1% in October compared with September. This was more than expected, and marked the thirteenth successive monthly fall, the longest such decline since 1932. It would be bad enough if the downturn were confined to America, given that it is the world's largest economy. But in contrast with the last American recession, in 1991, this time the rest of the world is in trouble, too: in most cases largely as a consequence of America's problems.

In spite of the special difficulties involved in forecasting global economic prospects at this juncture, the IMF has had a go at producing revised estimates. They make for depressing reading. The IMF's last forecast was published on September 26th. Although that was after the terrorist attacks, the numbers were prepared before and took no account of their possible impact. Now the Fund's economists have had a chance to see how severe the short-term impact has been, and they have revised their figures accordingly.

The scale of the downward revisions involved has come as something of a surprise, not least to the American government. Next year, for example, the IMF expects the American economy to grow by only 0.7%, instead of the 2.2% it was projecting only a couple of months ago. Global growth forecasts have been revised downwards both for this year and next: now the Fund expects the world economy to grow by only 2.4% in 2002, as against the 3.5% it expected earlier.

At a press briefing on November 15, Mr Kohler tried hard not to sound overly pessimistic. Neither he nor the Fund's deputy managing director, Anne Krueger, accepted the definition, popular among some economists, that a global growth rate of anything less than 2.5% amounts to a world economic recession. Overall, Mr Kohler insisted that he and his colleagues still think the current downturn will be less severe than those in the late 1980s and early 1990s.

The Bush administration remains much more upbeat about America's economic prospects. Paul O'Neill, the treasury secretary, says that he has bet Mr Kohler dinner-"a great big one"-that the IMF forecasts would turn out to be wrong. In spite of his optimism, Mr O'Neill has strongly backed President George Bush's calls for Congress to stop arguing and get on with the passage of a fiscal stimulus package for Mr Bush to sign.

There are one or two-admittedly faint-signs that have encouraged optimists to hope the American economy might be at or nearing its low point. Most of the statistics published in the past few weeks have been discouraging. But one or two have not been quite so bad. Retail sales rose sharply in October, by 7.1% compared with September. Much of that reflects the particularly sharp drop seen in sales in September, and some of the October rise is also explained by special discounts aimed at enticing people back into shops. But stripping out special factors still suggests October was the best month since January. New unemployment claims seem to be stabilising as well, suggesting that company lay-offs may be easing-though the unemployment rate is expected to carry on rising for a while yet.

But, as the IMF figures have again reminded economists, America isn't the only source of bad news. Europe, which started the year so well, has seen its prospects deteriorate rapidly this year. The European Union as a whole still seems likely to escape recession next year, but for Germany, the EU's largest economy, the escape will be a particularly narrow one.

There can be no such doubts about the economic fate of large parts of Asia, which are already in deep recession. Taiwan, newly admitted to the World Trade Organisation (WTO) on November 11th, is facing its worst-ever year, with the prospect of GDP falling in every quarter. Singapore is currently seeing its economy shrink at an annual rate of 10%. China continues to grow at a rapid rate, if not at quite the breakneck pace it has grown used to; but nearly every other east Asian country, including Thailand, South Korea and the Philippines, is in trouble, as world demand for their exports, especially high-tech products, has collapsed. The impact on developing countries, many of which rely on commodity exports, has been equally severe. Recent figures from the WTO show that world trade will barely grow this year, if at all.

If the IMF is right, a global economic recovery could start sometime around the middle of next year. But for the world's second-largest economy, Japan, the prognosis is far worse. Japan is now in its fourth recession in a decade, and a prolonged one at that, with GDP expected to contract both this year and next. Economists agree that Japan's problems are much more serious and will require much more radical policy action than the authorities there have yet delivered.

Japan's troubles are uniquely acute. But it would be a mistake to write them off as irrelevant to the rest of the world. There is a growing consensus that one of the country's biggest problems is deflation-falling prices as opposed to falling inflation-and that it has so far failed to grapple with this. But there are those warning that deflation is a risk elsewhere, notably in America, where figures published on November 16th showed a fall in consumer prices. Nobody is yet suggesting America is suffering from deflation, which can trigger a downward spiral of falling prices, shrinking demand and financial distress: a vicious circle America last experienced in the 1930s depression. Wise policymakers will not ignore the risk, however.

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