THE UNITED STATES

ALREADY into its second year of recession, the US has economic woes that appear to be deepening rather than healing. Wall Street's pain has spread to the real economy, with almost 650,000 jobs lost in both January and February. The unemployment rate hit a 25-year high of 8.1 per cent last month and is predicted to soar to 10 per cent by year-end.

To be sure, the government's free flow of bailout funds and its plan to reduce mortgage foreclosures have helped somewhat, and talk has already surfaced that the recession may be bottoming out. The US recovery, however, is anticipated to be a slow one, with years of tepid growth ahead.

Developing economies, on the other hand, are expected to get back on their feet faster and drive growth by boosting domestic consumption and intra-regional trade. Is this crisis the beginning of the end for the US-led world economy?

CHINA

THE spotlight is firmly on China, and not just because it will boast the fastest growth rate in the world this year, when most other countries are facing down negative growth numbers.

The country is the biggest foreign buyer of US treasuries - having overtaken Japan last year - and is, therefore, a main financier of the US' ballooning deficit, which is the key tool in Washington's economic arsenal and which may hit US$1.5 trillion (S$2.3 trillion) this year. But will China continue to lend money to the US government? Premier Wen Jiabao has already expressed concern over the safety of China's investments in US debts, delivering a hit to treasury prices last week.

Meanwhile, the global recession may have caused the economic equivalent of a tectonic shift in China and America's relative positions of strength. China may not yet have decoupled from the US, but its focus on reducing export reliance and boosting domestic spending could make that just a matter of time.

Alongside Japan, China is also positioned to lead Asia to greater independence and economic self-sufficiency post-crisis. The slump may prove to be China's golden opportunity to come into its own.

EUROPE

THE age-old divide between Eastern and Western Europe has resurfaced, as the heavily indebted and recession-hit predominantly former Soviet bloc economies face the prospect of defaulting on billions of dollars in loans extended by their Western counterparts.

Most of the debts held by Eastern Europe are owed to Western European banks, especially those in Austria and Italy. Austrian bank loans to Eastern Europe alone amount to about 70 per cent of Austria's gross domestic product.

As Eastern Europe flounders, Western Europe is in no position to offer help, burdened as it is by its own asset bubble bursts and overextended banks. Help from the European Union is unlikely to be forthcoming: The incomplete union has a single central bank to coordinate interest rates, but 27 separate finance ministers.

With Eastern Europe tottering on the edge, it threatens to bring down an already weakened eurozone. Could this spell the end of the EU?

JAPAN

BARELY out of its lost decade, Japan is showing alarming signs of sliding back into the mire. Its economy shrank 3.3 per cent in the last quarter of 2008 - its third consecutive fall - due largely to a plunge in exports made worse by a strong yen. The prognosis this year is for a decline of 4 per cent - twice as sharp as in the US and Europe.

Worse still, leadership is as weak now as it was in the lost decade, with Prime Minister Taro Aso's Cabinet reshuffling ineffective leaders. Political standoffs have also meant that only a quarter of the proposed 12.6 trillion yen (S$195 billion) stimulus package has been implemented. Mr Aso is now calling for a second, more effective stimulus plan.

As part of both the developed world and Asia, Japan's performance will be one of the most closely watched this year.

OIL-PRODUCING COUNTRIES

WITH uncertainty turning into a buzzword in this crisis, stable oil prices will be crucial for steady and robust global economic growth. Any announcement by the Organisation of Petroleum Exporting Countries to cut output will jolt the already weak world economy.

Oil prices have risen from below US$35 a barrel last month to stay well above the US$40 level in recent weeks. A consistent support level for oil will make it that much easier to nurse the world economy back to health.

This article was first published in The Straits Times.