As expected, the newsflow on the global economy is proving to be quite unpleasant and is keeping risk appetite in check. People all over the world are aware that this is a synchronised global recession that is biting deeply.

Consumer spending in the United States is sliding. This is evident in the latest report on US GDP performance in the fourth quarter of last year. The economy contracted at a 3.8 percent annual rate, which was actually better than the consensus expectation. But that was nothing to cheer about, because the difference was made up by unanticipated inventory accumulation.

In an environment characterised by falling sales, firms do not voluntarily engage in accumulating excess inventories. Under recessionary conditions, this is poisonous to the corporate bottom line. Naturally, the expectation is that there will be further production cuts in the current quarter, in order to reduce inventories.

But what is sensible for the individual firm is damaging for the economy as a whole. Cutting back on output and employment exacerbates the problem at the aggregate level, which means that the Obama stimulus package has to be implemented quickly if we are to see stabilisation and a rebound of the economy in the second half of the year.

Firms are also cutting back substantially on capital spending, adding to the downward momentum in the economy. And given the weakness in the global economy, there is little hope that exports will be a positive factor, as they have been previously.

Speaking of exports, Japan is particularly vulnerable to further downside for the global economy. With perennially feeble domestic demand, they are dependent on the export sector to drive economic growth. But fading global demand has resulted in sharp falls in industrial production for two months in a row. Meanwhile, household consumption has been declining for many months, in the face of rising unemployment.

Reports from other economies, around the world, are equally bleak. It is unnecessary to examine all of them to make the point clear. For the broad picture, let's look at some aggregate indicators. The momentum of the OECD total leading economic indicator is still pointing downwards with no sign of a turnaround. Global industrial production, which refers to more recent data, is also trending lower, and this also applies to the global purchasing manager's index.

The volume of air freight has fallen dramatically, according to the International Air Transport Association. As for the Baltic Dry Index, which is a barometer of the volume of global trade, it appears to be rising tentatively from very low levels. And, a little more hopefully, commodity prices have stopped falling and have staged modest recoveries.

Most governments are in hyperactive mode, trying to shore up the financial system and stimulate the economy. What we are witnessing is an epic struggle between the forces of deflation and those of stimulation. The battle is finely balanced and it is too early to place a clear bet on the outcome.

Most of the discussion on this topic has emphasised the downward deflationary risks to the global economy. By now, everybody is aware what those are, and we don't need to repeat them here. But the outlook is not all gloom and doom. There are, indeed, grounds for modest optimism.

You may recall that in the summer of 2008 analysts were comfortably sanguine about the possibility of a slowdown in activity. It didn't take long before they were hit by gale-force winds, as the speed of the deceleration of the global economy and the decline in inflationary pressures took them totally by surprise.

This demonstrates the power of the economic multiplier in an interdependent and synchronised world. Currently, massive government stimulus packages have been introduced in every region of the world. If the process of the destruction of asset values is dealt with, then aggregate demand can begin to recover in the latter half of the year.

And as the global multiplier kicks in, the spurt in growth could surprise everybody. Of course, it is utterly important that the forces of protectionism are kept at bay. Otherwise, the scenario that the pessimists fear may come to pass.

Iraj Pouyandeh is a Strategist and Senior Portfolio Manager at LOM Asset Management. He manages the LOM Global Equity Fund. For more information on LOM Asset Management please visit www.lomam.com