The rapidity of the global slowdown, its coordinated nature, and the reduction in inflation pressure has surprised many people. Actually, it constitutes further evidence of the degree of integration and speed of response in the world economy. As Nassim Taleb has commented: "sales at Wal-Mart decline today and a factory in China closes tomorrow".

Official growth forecasts for the Chinese economy have been too rosy, and experienced China watchers suspect that recent data releases on output have too much of an upward bias built in. As we have mentioned previously, the export sector is very vulnerable to a global slowdown and domestic demand may not be able to take up all the slack.

The authorities have been hyperactive in trying to ensure that the economy does not decelerate substantially. In early November, they brought out a big stimulus package targeted at spending on housing and infrastructure, through 2010. And, last week, they cut the key lending rate by the most in eleven years.

In addition, bank reserve requirements were lowered, and the central bank reduced the interest rate it pays on reserves deposited by commercial banks, to encourage them to lend more actively. Of course, as in every other country, banks are reluctant to add to their loan losses by lending to poor credit risks in difficult times. So the authorities may have to cajole the banks to take those unpleasant risks.

What happens in China matters a great deal to everybody. It may not be the largest economy in the world. The IMF puts it in third place, after the European Union and the US, on a PPP (purchasing power parity) basis. But, in recent times, it has been the biggest contributor to global growth, and a slowdown in China is bad news for the world economy.

Governments in both developed and developing countries are bringing in fiscal stimulus packages and implementing monetary easing. The scale of government intervention is unprecedented and we haven't seen the end of it, yet. That is why we think that talk of depression represents exaggerated fears, at this point in time.

However, there is another fear stalking the global economy that is very real. It involves the risk of rising protectionism.

There is no doubt that the incoming Obama administration is more likely to listen to protectionist arguments, though implementing actual policies may be a different matter.

European governments may also some under pressure, as the recession intensifies. The worst outcome for the global economy would be a series of tit-for-tat measures. In a recessionary environment, this could descend into destructive protectionist wars that would hurt everybody.

George Bush reiterated his belief in free markets at the APEC meeting in Lima, Peru. Amazingly, he said it with a straight face. It hasn't gone unnoticed that US officials, from Paulson to Bernanke, and everybody in between, have been engaged in wholesale contravention of free-market principles. Mind you, none of the governments represented at the APEC meeting, and those elsewhere, have clean hands.

It is reported that Russian authorities have been telling their media to refrain from using words that, while truthful, may depress investor psychology.

In other words, they are being told to deliberately bias their reporting. Russia has largely government-controlled media. But even in the UK, it is understood that Treasury officials have tried to lean on the Financial Times to write rosier stories. The newspaper has, rightly, resisted the pressure.

Sophisticated investors will quickly smell a rat. Succumbing to pressure from officialdom would destroy a quality newspaper's reputation, which would be very hard to rebuild.

The price of gold has perked up recently. Two of the main factors that affect its performance are the trade-weighted dollar index and oil prices.

A rise in the dollar index is generally negative for gold, as is a fall in crude. The current rally in the dollar index may not be entirely over, but it is long in the tooth. Fundamentals of the US economy and financial system are not dollar-supportive, but the process of deleveraging, risk aversion and repatriation of capital has, thus far, boosted the greenback.

As for the oil price, it has stopped falling for now, though in a weak global economy there could be more downside ahead. But, going forward, the factor that is most positive for gold is the stance of government policies in many countries. There is a deliberate attempt to transfer wealth from creditors to debtors by generating negative real rates. So, while gold may experience a few bumps in the near term, it may be sustained by supportive factors in the longer run.

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