The overwhelming outlook from this year’s World Economic Forum in Davos is a recession in America.

However, delegates were split over the severity of a US slowdown and the steps that should be taken to limit the fall-out both in the States and in global financial markets.

Dominique Strauss-Kahn, director general of the International Monetary Fund (IMF), said there needed to be a “serious response” to a slowdown in the US.

The head of the IMF, which was earlier criticised by Prime Minster, Gordon Brown, for being “dated”, said: “Whatever the answer is on a recession, what is clear is there will be a serious slowdown [in the US] and it needs a serious response.”

Mr Strauss-Kahn said: “What we need...is a more strong system of co-ordination. This coordination is going on among the central banks, but it is not enough on its own.

“We can’t speak day after day about globalisation without at the same time having in mind that...we need multilateral solutions.”

Citigroup’s William Rhodes, senior vice chairman of the US banking giant that recently reported a $9.83 billion fourth quarter loss on an $18 billion writedown, also called for increased co-ordination between central banks to help financial institutions through the current market.

“It’s going to take some time for these things to work their way through the system,” he said, adding: “It would be helpful if there were more coordination between central banks.”

Central banks have acted together just once since markets conditions began to worsen in August.

In December, a group of central banks, including the US Federal Reserve, the Bank of England and European Central Bank, banded together to provide a massive, short-term injection of funds into Europe and North America to help ease a global credit squeeze.

This year’s World Economic Forum at Davos took place against a backdrop of economic turmoil including extreme volatility in global stock markets, the US Federal Reserve’s surprise three-quarter point cut to interest rates and the emergence of a €4.9 billion writedown at Societe Generale, blamed on the actions of “rogue trader”, Jerome Kerviel.

Angel Gurria, secretary general, of the Organisation for Economic Cooperation and Development (OECD), said he expects the US Fed to make a further cut to interest rates.

He said: “[The Fed] may if they have enough information that the weakness is greater than they have anticipated.

“If they do, it will be a sign that they are wary.”

John Thain, the newly installed chairman and chief executive at Merrill Lynch, the US investment bank, said: “As we look out into 2008, I think there will continue to be downward pressure on home prices, that will continue to put downward pressure on all mortgage related securities.

“Unfortunately I think there is more downside from mortgage and mortgage-related products.”

Mr Thain, previously the head of NYSE Euronext, took over the running of Merrill Lynch from Stan O’Neal in December, when the investment bank announced the largest quarterly loss in its 93-year history of $2.2 billion after $8.4 billion in write-downs, mainly related to sub-prime mortgage debt.

Since then, Merrill Lynch wrote down more than $16 billion of high-risk sub-prime mortgages in the fourth quarter, forcing the bank into a $9.83 billion loss.

Speaking at Davos today, Mr Thain said: “The problems in the credit market are spreading, spreading to the consumer sector. Focusing on the consumer, the consumer sector is still going to be concerned.

“It will be a while before you see a return of normalcy in banking and (capital) markets.

The fed cut and the fiscal stimulus package are not going to help declining house prices in the US, that problem is likely to continue.”

Commenting on the health of Merrill Lynch, Mr Thain said the bank was not concerned about future losses as it now marked down all the complex financial instruments exposed to distressed debt.

He said: “They’re marked down so low that we have no concerns left about this at all.”

Mr Thain also branded the situation at Societe Generale as “a CEO’s worse nightmare”. He added: “You cannot stop fraud. You can only put in systems that will hopefully let you catch it in time.”

“After any of these things, the banks examine their systems to see what they can do to try to prevent it from happening to them.”

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