While United States Treasury Secretary Hank Paulson was prodding Congress to bail out America's biggest mortgage-lenders, the British Chancellor of the Exchequer said global conditions were worse than expected. Meanwhile, the Asian Development Bank threw its hat into the ring, declaring that Asia's growth would drop to its lowest level in five years.

The global economic seas turn rougher by the day. Already, talk has begun of the next Great Depression. There is indeed a risk of a global economic downturn on a scale not seen in decades. But a replay of the 1930s? That may be a stretch.

One must not minimise the severity of the condition in which the global economy finds itself, though. Everywhere, food and energy prices are surging. Demand in the US has slowed sharply, and may soon begin dropping. In response, the US's major trading partners are slowing down. Meanwhile, inflation is rising across the planet. This will translate into higher interest rates.

Higher interest rates, in turn, will restrain the economic rebound. Moreover, with asset prices falling in the major economies, heavily-indebted consumers will pull in their horns as they rebuild their savings and pay down their debts. That will further depress consumption.

Upward pressure

On top of all this, government bailouts of failing corporations in some of the major economies will add to the stock of public debt, placing yet more upward pressure on interest rates. Conceivably, therefore, it could be years before a strong economic rebound sets in. The US appears to be particularly vulnerable to a prolonged slow-down - a reflection of the fact that its 1990s boom was particularly long and strong (and fuelled by debt).

Still, it's important to put this in context. Although the American economy is dragging the world down with it, there is as yet little evidence that a global recession will result. Asian growth may slow. However, barring some unforeseen catastrophe, that will amount to healthy growth, as opposed to the red-hot boom of recent years.

Slow growth in the US, coupled with continued growth in Asia, and high inflation across the planet, resembles the 1970s more than the 1930s. There's no doubt the period will be challenging for all of us. But the sort of collapse in consumption, and surging unemployment, which characterised the Great Depression, still seems a way off. If nothing else, government programmes to mitigate economic collapse are so much more robust than they were then, that wholesale economic collapses seem unlikely.

Painful adjustment

On the other hand, a painful adjustment period seems all but certain. And here in Jamaica, things have been compounded by a series of collapses in the country's informal investment schemes. In the best-case scenario, this would have been a difficult year for Jamaica. Global conditions will now make it harder yet.

On a more positive note, there are signs that the rise in food and energy prices may be close to a peak. Slowed economic growth, and increased output - particularly of food - may bring prices down from their lofty level by next year. By then, there's a good chance that the negative effects of the collapse of the investment schemes will have run their course (if the econometric model we ran at CaPRI turns out to be correct in its predictions). So the pain, so acute at the moment, may begin to ease.

Catastrophic fall

But, there's no guarantee of that. And there is always the possibility of a catastrophic fall in asset prices. The Chinese bubble, for one, may yet burst. So hoping for better days is perhaps not a reasonable economic policy at this time. A hurricane season of sorts is already upon us.

John Rapley is president of Caribbean Policy Research Institute (CaPRI), an independent think tank affiliated to UWI, Mona; for feedback, email: columns@gleanerjm.com.