World economic fears prevail

@CNNMoney August 9, 2011: 1:30 PM ET

NEW YORK (CNNMoney) -- Global investors have lost confidence in the economic recovery -- and for good reason.

The United States job market has still not fully recovered its losses from the Great Recession. Europe's debt crisis rages on with no end in sight. Japan is still struggling to overcome its March earthquake. And rapid growth in booming China is even starting to gradually slow down.

Can you blame anyone for viewing the glass as half empty? Here's a round-up of some of the risks currently facing the global economy.

United States: U.S. stocks have plummeted in wake of the S&P downgrade Friday -- but the broader story here isn't about the government's ability to make good on its debt. Instead, investors are more concerned about the American economy losing what little momentum it already had.

U.S. gross domestic product -- the broadest measure of economic growth -- grew only 0.4% in the first quarter, and 1.3% in the second. Economists are starting to fear that at a rate that slow, it wouldn't take much for growth to turn negative. In other words, Great Recession 2.0 may be more likely than originally thought.

The biggest drag on the economy right now is the American consumer. Amid slumping home prices and rising gas prices earlier this year, Americans cut back their spending. Meanwhile, 13.9 million people remain unemployed -- a fact that certainly doesn't spur consumers to go out and spend.

Without consistently strong job growth going forward, it's hard to expect a robust economy.

10 Largest world economies

Europe: What at first started with worries about Greece's debt has now spread to the euro zone's third and fourth largest economies, Italy and Spain.

On Sunday, the European Central Bank announced it would try to prop up Europe's bond markets, by buying unwanted Spanish and Italian debt. While that move has since helped prevent those bond markets from collapsing, many experts say it is not a cure-all for the region's crushing debt crisis.

As Carl Weinberg from High Frequency Economics points out, if Italy and Spain fail, that will send a financial shockwave through the rest of the euro zone, possibly taking down France and even Germany.

China: Retail sales and industrial production in China slowed more than expected in July. Meanwhile, inflation in the country ticked up to 6.5%, led by surging food prices which continue to squeeze Chinese consumers.

China is the world's largest economy after the U.S., but it is still considered an emerging market as its economy has grown at a white hot pace of around 10% a year.

A recent slowdown in that rapid growth is partially due to a worldwide slowdown, but also the country's staggering inflation problem. Economists still say the Chinese economy is likely to outpace the rest of the world, but its growth may be at a slower pace than originally expected. And that could hurt the global economy.

Who in the world is most in debt?

Japan: The world's third largest economy has already sunk back into a recession, following a devastating earthquake, tsunami and subsequent nuclear crisis earlier this year.

Meanwhile, Japan holds the biggest debt pile relative to its GDP. At $13.8 trillion, the country's debt is more than twice the size of its entire economy -- which means it's facing an even more staggering debt imbalance than Greece. To top of page

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