A few weeks ago it looked like the worldwide economy was at last beginning to emerge from the biggest downturn since the Second World War.

But a slew of market data and a critical mass of bad news from around the globe have raised the spectre of modest worldwide growth for years to come.

The question now perplexing economists is whether this amounts to more than an autumn squall, or points to a more sinister threat to the global economy.

Fears over the spread of the ebola virus, continued instability in the Middle East, falling oil prices and anxiety over a renewed slowdown in Asia, the United States and Europe were some of the main factors behind the largest one-day fall in the FTSE 100 index since June 2013, which earlier this month closed almost 10% down from a September peak. In one of the most turbulent weeks in financial markets since the depths of the eurozone crisis, the equity crash on European, Asian and US stockmarkets knocked £46 billion off the value of the UK's top companies.

The International Monetary Fund has warned that the global recovery is "weak and uneven" and cut its forecast for global economic growth for this year and the next. According to its managing director, Christine Lagarde, "the new mediocre is the new normal".

In an economy that is "brittle, uneven and beset by risks", she warned of the dangers of "lack of action on structural constraints … a tightening of global financial conditions, a slow pace of recovery in advanced economies or any combination of these factors".

The steady stream of negatives throughout October caused the VIX index - the "fear gauge" which measures global stockmarket volatility - to soar to its highest point since the 2012.

The headwinds hitting the global economy this autumn have driven investors to transfer their cash into safe assets such as government bonds in creditworthy countries. Bonds are seen as the safest refuge for investors in stormy times, but the growing demand for them has led to sharp drops in yields - particularly in Germany, where the interest rate fell to 0.72% last week.

Among the bad news to emerge last week were figures from the US which showed a 0.3% fall in retail sales in September and producer prices dropping 0.1% for the first time since August last year. Meanwhile, in China there is growing concern that industrial overcapacity, a slump in the property sector and burgeoning debt could also slow the global economy.

As a proportion of GDP, total debt in China has risen from 147% in 2008 to 251% this year: a ratio that, while not uncommon in advanced economies, is unique among emerging ones.

Figures released last week showed that growth in the world's second-largest economy has slumped to its lowest level since 2009. The country is now on course for its worst annual performance since 1990, when China was under international sanctions in the aftermath of the Tiananmen massacre.

The Chinese government has played down the slowdown, describing the 7.3% expansion in the third quarter - down from 7.5% in the second quarter - as the country's "new normal".

After three decades of unprecedented growth, it now seems likely that China's pace of growth will be more modest in the years to come and could soon drop to 4%.

Among other Bric countries, Brazil's exports have been hit this year by falling commodity prices and the economy of Russia is suffering from falling oil prices and the effect of sanctions.

But the region of the world facing the most intractable problems is continental Europe, where continuing economic stagnation appears likely, following a sharp cut in Germany's growth forecasts for the next two years.

The German government now expects the economy to grow by just 1.2% this year (down from a previous forecast of 1.8%) and 1.3% in 2015 (down from 2%), prompting fears that Europe's largest economy - traditionally the region's growth engine - could slump into official recession (which is defined as two successive quarters of negative growth).

Throughout the financial crisis from 2008, Germany had largely weathered the economic storms blowing through other European Union countries.

But this year Germany's economy contracted by 0.2% in the second quarter, while recent figures showed that exports fell by 5.8% and industrial output shrank by 4% in August - the largest monthly drops in five years. Investor confidence in Germany has now fallen to its lowest level in almost two years.

According to Callum D'Ath, a director in the Edinburgh office of investment management company Brewin Dolphin, the main source of instability facing the global economy is undoubtedly the eurozone. He said: "Europe is the real problem at the moment. From the events of the last few weeks it looks like the eurozone is sinking back into the mire and stagnation of previous years."

But unlike the sovereign debt crisis which mostly affected the eurozone's peripheral economies, it is now the bloc's core economies of Germany, France and Italy which are feeling the pinch.

The fact that yields on 10-year German bonds have fallen to just 0.72% per annum (against around 2% for US and UK government bonds) is a sign investors are plumping for low returns and security. "What that is saying is there is a real risk of deflation in Europe now," said D'Ath.

The most effective remedy to the eurozone's problems, according to D'Ath, would be an immediate easing of fiscal austerity and for the European Central Bank (ECB) to follow the example of the US, Japan and the UK, and adopt so-called quantitative easing (QE): at its simplest, printing money to buy government debt in an attempt to refloat a country's economy.

Although QE has been successfully used in the US, the UK and Japan since 2008, Germany - despite enormous pressure from other EU member states - has led the opposition to using QE to reflate the economy of the 18-country eurozone (see panel).

D'Ath said: "If push comes to shove I think that Angela Merkel will probably allow the ECB to go down the route of QE, but I think things will probably have to get a lot worse before that happens.

"When the ECB recently announced a limited version of QE [the buying of asset-backed securities and covered bonds] it underwhelmed the markets. What is really needed is for something similar in size to the QE programme in the US. If Europe is going to do it, it should do it properly: something in the order of $2 trillion would be needed to make a real difference."

The eurozone's current economic woes can be seen as simply a further development of the sovereign debt crisis which erupted in 2009. The cracks were papered over, but no long-term solution was found,

The best hope is that if the US continues to tighten monetary policy by raising interest rates at the same time as the EU loosens monetary policy and the euro continues to devalue, this could provide Europe with the breathing space it needs to rebuild its economy.

Last week, there was a faint glimmer of hope that Berlin was finally considering easing its hardline approach to fiscal austerity when Germany and France - the eurozone's two largest economies - held a summit to discuss how to boost growth. But hopes of a major change of tack were dashed at the summit's press conference where German ministers repeated their view that the best medicine is getting eurozone countries to stick to agreed rules on deficits.

Although the economy ministers of both countries promised to "do what is needed" to boost investment, no detail of how this would be achieved was provided.

With France under pressure from Brussels to cut its budget, Paris had called on Germany to invest €50 billion (about £40bn) in infrastructure projects over the next three years to offset the €50bn of savings France needs to make in public spending. But following last week's summit, Berlin said it remains committed to balance the federal budget next year and only has plans to spend €5bn on transport and infrastructure.

In addition, both Germany's finance and economy ministers said that most of any extra investment should come from private, rather than public funds.

Germany's austerity approach to fixing Europe's economic woes is particularly resented in Greece, where the sovereign debt crisis first erupted in 2009. Although the country last week signalled that it is close to exiting its IMF bailout programme early, there are now renewed fears over the state of the Greek economy and instability in the country's domestic politics which could lead to early elections.

With debt equivalent to 175% of GDP and high unemployment, Greece's borrowing costs have risen above 9% for the first time in a year. Nevertheless, the country's economy is this year expected to grow modestly after six years of savage recession.

The situation in other countries hit hard by the eurozone debt crisis, such as Spain, Portugal and Ireland, is now improving, with unemployment falling and output rising. However, eurozone unemployment still stands at 11.5%.

In the UK, economic growth slowed to 0.7% in the third quarter (down from 0.9% in the second quarter) but the country is comfortably outperforming the eurozone.

It was this fact that last week led the EU to demand the UK pay an extra €2.1bn into the EU budget this year. But although the unemployment rate here is falling, the housing market is weakening, consumer spending and manufacturing are slowing and inflation remains worryingly low.

All of these negative indicators bode badly for the UK, according to Professor Brian Ashcroft of Strathclyde University. "Underlying growth in the UK is being built on extremely shaky foundations and is unsustainable," he said. "The problem is that many consumers think that there will be growth down the track when they could well be wrong."

The eurozone remains the UK's main trading partner and there are clear signs - according to Ashcroft - that the eurozone's difficulties are dragging down the UK economy.

As many commentators have noticed, there is now a real danger that the euro area - which accounts for almost a fifth of world output - is now on the verge of tipping into its third recession in six years.

Last week the new president of the European Commission, Jean-Claude Juncker, warned that the EU's institutions are now in the "last chance saloon" to win back trust in the EU.

But without structural reforms in France and Italy and a major change of economic policy in Germany, Europe - and the UK with it - could soon find itself in the same tar pit that Japan has languished in for two decades. The race is on to avert that, and the rising joblessness and falling living standards that will go with it.

Germany and Quantitative Easing

Germany’s aversion to stimulus policies dates from the hyperinflation of the 1920s when shoppers needed a wheelbarrow to carry the amount of banknotes needed to pay for loaves of bread.

That experience has been etched on the country’s national psyche and is thought to be one of the main reasons behind the country’s attachment to price stability and its opposition to adopting the policy of quantitative easing which has been used throughout the economic crisis in the Us, the UK and Japan.

Quantitative easing involves central banks buying up assets – normally government bonds – from the country’s privatesector institutions, such as banks and pension funds. The new money to buy these assets has been created out of thin air, having been printed, or created electronically, for the purpose.

As a result of the increased demand for bonds, their value rises. This encourages the companies which sold the bonds to use the “new” cash in their accounts to invest in other sectors of the economy, hence boosting the money supply of the country or region.

When a national economy is functioning normally, central banks usually use interest rates to control lending and economic activity. But when interest rates are at a record low – as they are now – a central bank’s best hope of encouraging people to spend is to pump money directly into the economy using schemes such as QE. 

Since 2008, the Federal Reserve has pumped trillions of dollars into the US economy and many economists believe the policy has helped the country recover at least some of the growth lost since the credit crunch and the subsequent recession.

In the UK, the Bank of England began using QE in 2009. Although the policy is generally thought to have boosted growth, some claim it has failed to increase bank lending to businesses.

According to the International Monetary Fund, QE undertaken by the world’s central banks over the last six years has reduced systemic risks in the global economy, improved market confidence and contributed to the bottoming-out of recession in G7 economies from 2009.