International wrap: Australia's economy shrinks by 0.5% in Q3

Australia's economy shrank by 0.5% in the last quarter of 2008, the first time in eight years, leading to fears the country may be caught in the global downturn, for the first time in eight years, raising fears that the country may be heading for a recession. Expectations were that it would grow by 0.2%.

Australia has fallen much less than western countries, but has been hit hard by a downturn in commodities. Australia had hoped to avoid being dragged down in the crisis, given its closer ties with the Asia Pacific region. Elsewhere in Asia, the World Bank approved a $2 billion contingency facility for Indonesia to support government spending and external funding, in the largest ever loan the World Bank has given to Indonesia, as also to a country which is not in crisis. Japan is to contribute $1.5bn, while the Asian Development Bank and Australia have each indicated they will contribute $1bn.

China to unveil a new stimulus package

Hopes rose around the world that China will unveil a new stimulus package, even as indicators showed that the manufacturing slowdown in China may be hitting a bottom, as data from purchasing managers survey showed that while it is still contracting, the index rose 5 points from last month. Markets around the world responded favourably to the expectation that the Chinese government will, on Thursday, reveal a new stimulus package that includes a cut in stamp duty for stock sales, a rebate on textile duty and new tax rates to spur exports.

Eurozone services sector continues to tank

In Europe, a similar survey showed that new business in the Eurozone services sector continued to tank, with jobs evaporating at record levels. However, in UK where services is the single largest contributor, the pace of the downturn may have slowed. The headlines index, though still in the negative, has incrementally moved upwards from its record low in November, giving a glimmer of good news.

Meanwhile, UK���s Gordon Brown in a crucial visit to the US president Barack Obama, seems to have got Mr Obama���s support for a global solution to banking regulation and a coordinated response, in the run-up to the G20 London Summit in April. It was speculated that as America deals with its domestic problems, a globally coordinated overhaul of the problems facing the world may not be high on the American agenda.