For the second time this week, world markets have lurched deeper into the abyss, driven by the deepening recession, the realisation that General Motors has to be rescued in the US or it will fail, lower interest rates and growth in Europe and the failure of China to produce the stimulus rabbit yesterday.

If anything underlined the continuing credulousness of some Western media about China, the way the new stimulus story was spun via leaks and “officials” appearing out of the blue to tell of a forthcoming surge in spending, was nothing short of amazing.

This had been going on for over a month: no wonder the Chinese stockmarkets have been the best performing around the globe in the first two months of the year, while other markets, led by Wall Street, the US, Japan and Australia fell by up to 20%. Some media outlets were valiantly reporting that China says it will spend anything it takes, when the real story is China has to spend heavily to keep the economy from slowing further.

So the disappointment over China met more gloom in Europe and the US and the result was a downer. Just when things look to be as miserable as you’d imagine, along comes a new report, or set of figures. The bottom is a long way off.

In the US, the Standard & Poor’s 500 fell more than 4% to its lowest level since September 1996, the Dow was lower by the same amount and Nasdaq hit a six-year low as investors prepared for tonight’s expected bad news on American jobs and an unemployment rate of 8% or more.

Earlier, Germany’s Dax lost 5&, France’s Cac 40 fell 4% and the UK’s FTSE 100 dropped 3% after the Bank of England cut its rate to a new all-time low of 0.50% and said it would start printing money to inject around $A180 billion into the economy to get lending going again.

The BoE said it would pump 75 billion pounds to buy government bonds over the next three months from commercial banks that are supposed to use the cash to extend credit to the wider economy. Fancy trusting the banks after all the criticism about their lending and subprime adventures. The truth is, the banks are the only groups willing and able to push more money into the economy.

The European Central Bank cut its key rate by 0.50%, and surprised markets by slashing its economic forecasts for the next two years.

The new ECB staff forecasts call for a slump in growth this year to minus 2.7% (a contraction of 0.50% since last October) and no growth for 2009 at all (1% growth was forecast in October). In the meantime, new ECB staff forecasts for Eurozone growth and inflation were revised sharply lower from their previous estimates and caught many analysts by surprise. Inflation will fall sharply, which has got the Europeans worried about the dangers of deflation again.

The lowered forecasts were after the slump in exports and business investment pushed the 15-country Eurozone economy into the deepest contraction in its 10-year history. The Eurostat data agency said the Eurozone economy contracted 1.5% in the December quarter, against the 0.,2% in the September quarter. This quarter will be deeper again, led by Germany, according to other forecasts in recent weeks.

Eurozone exports fell 7.3% in the fourth quarter while business investment fell by 2.7%: in contrast Japanese exports plunged by more than 20% in the final quarter and business investment fell 18.1%. No wonder employment is under pressure. In the US the final quarter saw exports slump sharply by around 23%, faster than the fall in imports, which undermined growth.

It’s figures like that that make a mockery of those here among politicians and commentators who want more investment incentives for business. It’s not: there’s too much capacity around the world that’s idle, especially in our area of strength, resources. What we want is more investment in all forms of infrastructure, education, training, even the arts and sport.

US factory orders fell for another month, down 1.9%, better than the revised (downwards) 4.9% plunge in December. It’s the longest slump since these figures started in 1992.

The US Labor Department said America’s non-farm productivity, a measure of the output per worker hour of goods or services, fell at a revised 0.4% annual rate, sharply below initial estimates of a 3.2% rise for the December quarter and a 2.2% rise in the third quarter. US output was revised to show a much deeper, 8.7% fall for the fourth quarter, the sharpest decline since the first quarter of 1982. It was initially estimated at 5.5% fall.

And General Motors Corp has made it clear there are only three alternatives now about its future: there’s “our bankruptcy, there’s some else’s bankruptcy move, or there’s Government aid”. That was after its auditors raised “substantial doubt” about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash.

The “going concern” warning from the struggling US automaker had been expected, but it brought US markets up short. They now know there’s no escape for the Obama Administration as it considers the request from GM for billions more in loans (which will probably never be repaid).

The auditors’ warning was contained in a filing with the US Securities and Exchange Commission, under a section on “risks related to us and our automotive business.”

GM said that its future depended on its ability to execute a viability plan presented to the US Treasury last month as a condition of its $US13.4bn bail-out loan. However, GM said: “If we fail to do so for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the US Bankruptcy Code.”

And to remind everyone that the decision is needed quickly, GM pointed out that around $US1 billion of convertible debt matures on June 1 and the company said it can’t afford to redeem it. It’s believed notice has to be given by GM of its intentions with this debt well ahead of the due date.

No Government aid would see GM file for bankruptcy straight away.