A full-blown, prolonged recession in the United States is now inescapable, with the rest of the world set to be dragged into a severe slowdown despite this week's emergency cut in US interest rates, leading economists said in Davos yesterday.

As a continuing plunge in world stock markets and the Federal Reserve's drastic and dramatic reaction overshadowed the opening

of the annual gathering of political and business leaders, the fear factor from a darkening outlook for the global economy looked set to dominate the week-long meeting.

Some of the world's most prominent economic pundits told an opening session that the Fed's surprise three-quarter-point cut in US interest rates was already “too little, too late” to stave off recession in America. They predicted that Britain, Europe and much of Asia also now face a sharp and unavoidable economic downturn, even if they escape recession.

The Fed came under heavy fire, along with other central banks. Leading policy-makers, including Larry Summers, the former US Treasury Secretary, joined economic experts in attacking the US central bank. It was accused not only of having been

“behind the curve” and “asleep at the switch”, but also of failing to take pre-emptive action to prevent the financial instabilities that have triggered the present crisis, and of appearing to give stock markets an unjustified bailout this week.

Others, including John Snow, Mr Summers's Republican successor, defended the Fed's strategy, however, and applauded yesterday's aggressive rate move.

Nouriel Roubini, the influential economic consultant, had no doubts about America's prospects: “It's not whether we have a soft landing or a hard landing in the US but rather how hard a landing it is going to be,” he said. “The recession is going to be deeper and lasting - at least four quarters ... It's going to be a severe recession.”

Professor Roubini said that the Fed's rate-cut this week was “too little, too late” to stop a consumer-led slump in the US economy, since American consumers were “shopped out”, laden with heavy debts and the financial system was under “severe stress”.

“The Fed cannot prevent this recession from occurring,” he insisted.

His bleak prognosis was echoed by Stephen Roach, former chief economist at Morgan Stanley and now the investment bank's chairman in Asia. He agreed that with American households under financial pressure from debt burdens that were at record highs and from the housing market slump, the US economy faced a sharp retreat by customers from shops and malls.

Mr Roach highlighted how Americans have been spending the equivalent each year of 72 per cent

of US national income - far above the 67 per cent average over recent decades. He gave warning that if spending patterns now fell back to historic levels in a year, “it would be the mother of all recessions”.

He said it was likely that consumer spending would fall in this way, although over several years, and that this was a necessary adjustment from behaviour that had become unsustainable. “We have used the overvalued home like an ATM [cash] machine, and in doing that we have taken debt loads up to record highs. None of that is sustainable. So we have got to take the excess out of consumption.”

Mr Roach and Professor Roubini dismissed suggestions that Europe, Asia or emerging markets could escape fallout from a US recession.

“Europe is not going to get a special dispensation from the global slowdown,” Mr Roach told delegates. He added that India and China were “not yet at the stage where they can fill the void that is going to be left by the American consumer ... I think it is going to be a close call, but I think we will not actually move into global recession.”

In a poll here, Davos delegates voted a recession in the United States the No1 threat facing the world.

Yet not all economists saw a worldwide downturn as inevitable. Fred Bergsten, director of the Washington-based Peterson Institute for International Economics, said: “I believe the world economy has, in fact, largely decoupled from the US ... That means things are much too bleak and pessimistic around here in terms of the outlook. My conclusion is that a global recession is inconceivable.”

Delegates were sharply divided over the wisdom of this week's rate cut and the Fed's broader record in running the US economy.

Mr Snow said: “Have the Fed and other central banks been asleep at the switch? No. The issue of whether the central banks are capable of vigorous action, bold action was answered yesterday.” He said that the Fed's move should ensure that any recession was “short and shallow”.

Mr Summers gave a damning view. He said that it was “hard to give a high grade” to the Fed over its recent policy “when they have been consistently behind the curve”.

Several experts, including Mr Roach, said that by being seen to react to fierce sell-offs of shares in recent days, the Fed was pandering to Wall Street and market pressure.

“We've got prima facie evidence that we have a central bank that is being goaded into action just by what the markets are doing and ... this is going to end in tears.

“It's a dangerous, reckless and irresponsible way to run the world's largest economy.”

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