20101103 dollar and the euro 18
In this photo illustration a one Euro coin can be seen next to American Dollar notes. As markets across the globe continue to struggle the world wide credit crunch begins to bite deeper with fears of economic recession. - 

BOB MOON: Perceptions seemed to change in recent days, as the world faced the reality of a slowing recovery. U.S. manufacturing data dropped to a two-year low, and Wall Street plunged two percent yesterday.

From London, Marketplace's Stephen Beard joins us live to talk about it. Stephen, why's everybody so jumpy on a spurt of discouraging data?

STEPHEN BEARD: Well, this is just a trigger, not the only one. We've just heard that manufacturing has turned down in Germany too -- the great engine of growth in Europe. And of course we heard a lot recently about the debt problems of Southern Europe.

Financial markets seem to have been surprised by these negative figures, but economists like Andrew Hilton at the CSFI think tank have been warning of a downturn for weeks. Andrew thinks a double dip recession is a distinct possibility both here in Europe and in the U.S.

ANDREW HILTON: Driven I think in large measure in the U.S. by the decline in the housing market -- there certainly seems to be a double dip in housing and that really has a quite quick knock on consumer confidence.

MOON: So, how do we get out of this mess Stephen?

BEARD: Well, it's difficult. I mean interest rates are at rock-bottom levels so it's hard to see how we can use even cheaper money to get people borrowing and spending. And government's don't have a lot of scope for stimulus spending. Governments on both sides of the pond are heavily in debt and under pressure to cut their deficits.

MOON: Well, what about the Federal Reserve though? It's been pumping money into the economy for the past year. Could they just keep printing even more money?

BEARD: That's a possibility, but Andrew Hilton says the danger there is that might send a signal the Fed is soft on inflation which could knock financial markets. So how does a brilliant economist like Andrew Hilton recon we're going to get out of this mess?

HILTON: Hard to say. Prayer is one alternative, just hoping that something will turn up is another. Indeed it may be the best strategy.

So there you have it. We'll just have to pray and hope and wait for the economy to turn up.

MOON: Oh my. Marketplace's Stephen Beard in London. Thanks.