Has the credit crunch caught business schools in its jaws? This is the question most likely to rob deans of their sleep as the recession tightens its grip on both the economy and the public imagination. Its impact on recruitment of students, the courses they take, how easily they find jobs and on competition in the already fiercely competitive MBA industry is being scrutinised as closely as any Roman priest examined a bird's entrails.

Unfortunately, the auguries are equally unclear. Diane Bevelander, director of MBA programmes at RSM Erasmus University, in Rotterdam, says: "We're all unsure about how the crisis will impact us in 18 months."

Others are prepared to be bolder. Professor Chris Bones, dean of Henley Business School, thinks big changes are afoot: "I believe that the economic crisis heralds the beginning of the end for the 26-year-old who does an MBA and expects a six-figure salary. The new world really will be a new world."

The evidence is uncertain partly because the onset of the crisis has been swift and recent. On the face of it, business is booming. Most schools say that their full-time MBA classes are at least as big as in recent years. Many are also seeing a significant increase in applications for full-time degrees. "I've seen a big increase in the number of applications," says Andy Robson, MBA director at the Newcastle Business School at the University of Northumbria.

Schools are also encouraged by the number of applications from overseas. Portsmouth Business School says applications for its international MBA are three times higher than a year ago, with applicants from Saudi Arabia and India among the fastest growing groups.

But the position may not be as healthy as it seems. It usually takes about two years from deciding to do an MBA to arriving on the campus. Students starting their degrees this year probably made up their minds before the economic collapse clouded job prospects.

Schools recognise that they are benefiting from a pipeline that filled up some time ago, but take heart from the conventional wisdom that recessions are good for business. Students, they say, may decide to do an MBA because it will improve their chances in a tight job market, or because they have lost their jobs and see taking a degree as a good way of spending their enforced leisure time.

But not everyone is convinced. Séan Rickard, director of the full-time MBA programme at Cranfield Business School, argues that funding for an MBA is harder to find in recessions and that the number of potential students who delay plans for an MBA until the job market improves may offset the number of newly redundant applicants.

Quality is also a concern. A flood of applications may not convert into able students. UK schools might reflect in addition that the increase in overseas applications – notably from the eurozone and Asia – could owe as much to the weakness of the pound as the strength of their courses. Warwick's applications from the EU are up a fifth from last year.

There is clearer evidence that Executive MBAs are suffering. Companies seem to be less willing to sponsor employees or to release them for block courses. "Training budgets are the first to go in an economic crisis," says Professor Howard Thomas, dean of Warwick Business School. This can be a particularly serious problem for smaller, regional schools that depend on local companies for a supply of executives.

"There's definitely a perception among employees that Executive MBA funding is harder to come by," says Anne Ridley, dean of Portsmouth Business School. Nevertheless, there are exceptions. Manchester Metropolitan University Business School says its new block MBA has attracted considerable interest.

But enticing students through the doors is less than half the battle. Business schools also have to be nimble about what – and how – they teach. And then there is the little matter of subsequent employment.

For some time students have shown an increasing interest in the values of business and its place in the world. The schools have obliged by building up their courses on corporate and social responsibility and offering electives on subjects such as social entrepreneurship.

Many schools believe that students are becoming more critical and that the crisis will intensify interest in ethics. This may also bring the debate uncomfortably close to home. Critics have accused business schools – American ones particularly – of aiding and abetting the financial crisis. Of course, the crisis is complex and its causes cannot be traced to a single door. But Professor Bones, for one, thinks that some humility is in order. "The track record of MBAs with a double-first in maths manufacturing credit derivatives is not a good one," he says. "The MBA industry must reform itself. It's easy to teach theoretical and quantitative stuff. But you don't get a lot of reality and certainly don't get today's reality."

Schools are trying harder than ever to meet student needs. Not surprisingly, finance electives have lost much of their allure. Portsmouth has seen a marked rise in the numbers taking courses in ethics and governance, and creativity and innovation. In May, Warwick will launch a new global energy MBA aimed at the energy industry.

At the same time, schools are compressing their courses where possible to give students better value for their time – RSM Erasmus University has shortened its international MBA to one year by cutting out the company internships.

Schools are also trying to broaden courses. Newcastle has built up close relations with Procter & Gamble in the north-east of England and with companies such as Skoda and Erste Bank in eastern Europe. Bringing companies on to the campus to engage students in teamwork to tackle real problems is increasingly popular.

Behind all this lies the harsh reality that the job market for MBAs is becoming more difficult and complicated. In the UK, and elsewhere in Europe, MBAs are still attractive to employers but the market is definitely tougher.

"The situation in financial markets has curtailed a lot of hiring from full-time education institutions," says Derek Walker, director of careers at the Saïd Business School in Oxford. "Students are evaluating their career options much more carefully now." Diane Morgan, director of career services at London Business School, agrees: "The number of organisations which are recruiting is going down, particularly in finance and consulting."

The tighter market means that employers are becoming fussier about who they take on. "There's no room for error – for not reading the newspaper that month; for making spelling mistakes on your CV; [for] not knowing whether a company is listed," says Morgan.

However, it is not all bad news. Sectors such as fast-moving consumer goods, oil and gas and pharmaceuticals are still hiring in reasonable numbers. Students are also showing more interest in employers they once spurned such as Royal Mail and the public sector more generally, and many more are considering starting their own businesses, The message is that the market is tough but employers are still looking for good MBAs, even if the employer is not the student's first choice.

And the news from elsewhere in the world is even better. The economies of Asia and the Far East are mostly still growing. Students in these regions can benefit from the prestige of a European MBA while being reasonably certain of a job when they return home. The relative strength of the jobs market in Asian emerging markets will also offset concerns among UK business schools about visa restrictions on graduates seeking work in the UK; they can recruit students knowing they can find work at home.

But the same relative health of emerging market economies means intense global competition between business schools for students. And as more business schools open across Asia and the Far East, schools in the UK and elsewhere will have to fight back. The struggle is likely to lead to consolidation, with business school alliances offering dual degrees or combined placement services for students.

In France, Rouen School of Management and Rheims Management School are launching the Paris Executive Campus which will offer a wide range of executive courses from tailor-made strategic support for companies to MBAs. It is hoped this will be a gateway to Europe for companies from Latin America and Asia.

If, however, the global economy deteriorates further, consolidation among second-tier schools may not be enough to narrow the gap between them and bigger schools with more prestigious brands.