WASHINGTON, Dec 23: The US economy shrank in the third quarter, official data confirmed on Tuesday, as the IMF’s top economist warned of a second Great Depression offering no respite from relentless gloom ahead of Christmas.

The abrupt 0.5-per cent contraction of gross domestic product (GDP) in the world’s largest economy was seen as marking the start of a steep downturn for the United States after GPD growth of 2.8 per cent in the second quarter.

Stocks on Wall Street rose in early trading, however, as the contraction had been expected and were unrevised from a previous estimate. The Dow Jones Industrial Average was up 0.54 per cent and the Nasdaq rose 0.60 per cent.

“This report is largely old news,” said John Ryding at RDQ Economics, who forecast fourth-quarter data out next month would be far bleaker.

“Given signs that the recession has deepened in the current quarter, we look for around a 6 per cent drop in real GDP,” he said.

Britain’s economy also shrank by 0.6 per cent in the three months to September compared to the previous quarter, against a previous estimate of 0.5-per cent contraction, the Office for National Statistics said.

Britain and the United States will be in recession if their economies contract again in the fourth quarter, according to the traditional definition of a recession as two consecutive quarters of negative economic growth.

The IMF’s top economist, Olivier Blanchard, maintained that governments around the world should boost domestic demand in order to avoid another Great Depression similar to the global downturn that shook the world in the 1930s.

“Consumer and business confidence indexes have never fallen so far since they began. The coming months will be very bad,” Blanchard said in an interview with the French newspaper Le Monde.

“It is imperative to stifle this loss of confidence, to restart household consumption, if we want to prevent this recession developing into a Great Depression,” he added.

New data out in France offered some relief, showing that household consumption of manufactured goods -- a key growth indicator -- rallied 0.3 per cent last month after slumping in October.

“It is a first small Christmas present for the French economy,” said Alexander Law, an economist at the Xerfi research centre in Paris.

The European Central Bank also issued some heartening pre-Christmas data showing that the eurozone’s current account deficit had narrowed to 6.4 billion euros ($9 billion) in October from 8.8 billion euros in September.

But elsewhere in Europe the news was more downbeat. Retail sales in Italy went down 0.3 per cent in October, Denmark’s economy contracted 0.4 per cent in the third quarter and the Dutch economy had zero growth, official data showed.

Finland’s unemployment rate rose to 6 per cent in November from 5.8 per cent in October and the Polish central bank cut its key lending rate by 75 basis points to 5 per cent in a bid to fend off a recession.

In Ukraine, thousands of people took to the streets for a union-led protest to demand higher wages and more social protection in the former Soviet republic, which has been hit hard by the global economic crisis.—AFP