Who will save us from this next dip?

A new global economic downturn looms. And the rich nations may need some surprising help to pull through

There is a breath of fear in the air about the health of the world economy. Even a couple of months ago the recovery seemed secure. Here in Britain, as in most other developed countries, growth might not be bringing all the expected benefits in terms of increased consumer confidence or employee security, but at least growth was expected to continue.

Now no one can be so sure. We will not have any reliable figures for the first half of this year for several months, but it does look as though the rate of growth has dropped off quite sharply in all the big economies. In the three months from April to June it looks as though there has been little or no growth in the United States, and there is even talk of a new dip into recession there. Japan may be moving backwards, too.

This change of mood is very new, and officialdom has yet to cotton on to it. The danger of renewed recession did not loom large at the economic summit in Halifax at the end of last week, and the Organisation for Economic Co-operation and Development, the Paris-based "club" of rich nations, has just published a half-yearly study of the world economy which barely acknowledged the threat.

But if governments have yet to take these concerns seriously, the worries are very evident in the financial markets. In the past few weeks, money market interest rates have been dropping in every major centre - the fall in sterling rates validating our Chancellor's decision not to increase base rates earlier this month. Long-term rates, too, have been falling. Remember, falling interest rates are a sign of lower demand for credit: slower growth is associated with reduced borrowing. The balance of probability may still be that this is just a pause in the growth phase, but all past experience shows that when markets signal concern they should be taken seriously.

So what's up? The first problem lies with the US. The American economy never ceases to surprise with its vitality. The US has had four years of recovery, characterised by its old industries restructuring themselves and its new industries booming. Its volume of exports has grown faster in the past 10 years than any other G7 country. (The second-fastest export growth, by the way, was in Britain; the slowest, Japan.)

But this otherwise impressive performance has been flawed by the continued twin deficits: the current account deficit and the budget deficit. Both are symptoms of a chronic shortage of savings. America has only been able to grow so fast because the rest of the world has lent it money. In any case, after a long expansion, it would be normal to expect other countries to take up the running, for the US could not be the sole locomotive, pulling along the world economy, for ever.

You might reasonably expect that when growth in the world's largest economy falters, the second-largest would take up the running. Not so. Japan has failed to make any reasonable recovery. We have been trained by three decades of Japanese economic success to think that it will always be so. But while the best Japanese companies are still competitive in world markets, they can only maintain this by shifting production abroad. At home the economy is paralysed: consumers are cutting their spending, companies cannot or will not borrow more to finance investment, and the banks have such a mountain of bad debts that many may well be technically bust.

People here in Britain may moan about the excesses of the late Eighties boom, and many individuals suffer negative equity on their houses; but at least companies and banks are no longer burdened by debts which inhibit the recovery. In Japan those excesses linger still.

It is easy for outsiders to set out policies which would enable the Japanese economy to recover. To help the company sector the government would have to help banks write off bad debt. That would stop banks having to repatriate capital to shore up their balance sheets and so would also help reverse the flow of funds which has boosted the yen. And to increase consumer demand it would have to have a bonfire of all the petty controls which plague Japanese society. But the politicians are paralysed, and the bureaucrats refuse to abandon the authority that regulation gives them. So nothing happens.

The third problem - or half a problem - is Germany, which is holding most continental European interest rates above the level needed to sustain recovery. It is only half a problem because the German economy, the third- largest in the world, is itself managing decent growth. But the poor French, in trying to hold up the franc against the mark, are forced to impose German interest rates on their country, despite their very high levels of unemployment and uncertain growth.

And that would seem to be it. Except that it not the whole story. This sort of G7-centric discussion ignores the world's most dynamic economies. What has been the fastest-growing region in the world over the past 10 years? East Asia, except for Japan. What has been the fastest-growing large country? China. What is the fastest-growing economy in Europe? Poland, which is banging along at more than 6 per cent growth. How is Latin America doing? Bumpy, to be sure, but some parts are growing very fast. Brazil, the sub-continent's largest economy, was running at 8 per cent growth in the first quarter of the year.

Outside our established, mature and somewhat ossified economies there is a whole other world. In the past it has been relatively too small to help the developed world much. We have become richer by trading with each other. But the combination of three things - the burst of growth in East Asia, the economic liberalisation of Latin America, and demise of the Communist economic system in eastern Europe and the former Soviet Union - have started to change the balance of power.

These "new" regions are not yet big enough to pull along the whole world economy, but they are much more important than they were even five years ago. They can help us. And that is one important reason why it is unlikely that the slowdown we will undoubtedly see this summer will slither backwards into something worse.

For we are still in the early stages of a gigantic shift in the balance of influence in the world economy. One hundred years ago it would have been normal to think of the motors for growth in the world coming from Russia (the fastest-growing economy in the early 1900s), China (a big British export market) or Latin America (the main recipient of our overseas investment). But we have forgotten this. Two generations, maybe more, of relative economic failure in these regions has encouraged us to think instead of the G7 as the main focus of the world economy. We now need to relearn some old lessons, and this summer is not a bad time to start.

Andrew Marr is unwell.