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GDP's sharp drop spotlights global recession

Meanwhile, Citigroup gets help from Uncle Sam.

By Staff writer / February 27, 2009

World Bank President Robert Zoellick, shown here speaking to international representatives at the German chancellery earlier this month, emphasized this week the global nature of the economic crisis.

Michael Sohn/AP

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America’s recession may now be matching the early 1980s in severity, a trend that in turn is amplifying a broader global recession.

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America’s gross domestic product, the nation’s output of goods and services, plunged at an annual rate of 6.2 percent in the final quarter of 2008, according to revised figures released by the Commerce Department Friday. That’s the sharpest drop in GDP since the first quarter of 1982.

Economists at the investment firm Goldman Sachs estimate that the decline, coupled with another slide in the current quarter, may end up as the US economy’s worst back-to-back quarters in half a century.

A cutback in consumer spending is not only dragging down US growth, but global growth as well. Japan and the European Union are now in recession, and China’s export-driven economy has downshifted sharply. Now it’s not just that Americans aren’t importing -- neither is the rest of the world. A decline in exports by US corporations was one key factor behind Friday’s GDP surprise.

The suddenness of the drop has caught much of the world off guard.

Down payment on a rescue

Heading into a weekend meeting of European leaders, international instutitions including the World Bank announced a $31 billion rescue fund for East European banks, which are at risk from a global contraction in credit. That may be just a down payment, and just for one troubled region.

“This is not a crisis of one region, it’s a global crisis. It needs a global solution,” World Bank President Robert Zoellick said this week.

And regarding East Europe in particular, he said the region may require $120 billion to recapitalize cash-strapped banks.

“This is a time for Europe to come together to ensure that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis,” Mr. Zoellick said.

The European Investment Bank and the European Bank for Reconstruction and Development also provided funds for the initial aid to the region.

Meanwhile, there's Citigroup