WASHINGTON (AFP) - A housing and credit crisis brought the US economy to a halt in 2008, creating a firestorm that has engulfed the world. Many analysts say the downward spiral has spread and become self-reinforcing, with the financial system largely frozen and consumers retrenching, portending the worst economic slump in decades. The question now is how hard and how fast the fall will be. The United States entered recession in December 2007, according to the officially recognized arbiter of business cycles, the National Bureau of Economic Research (NBER). Even though the US has not yet recorded two consecutive quarters of declining activity " the traditional definition of recession " the downturn in income and employment has been significant enough to qualify as a recession, NBER said. Official US figures showed gross domestic product declined at a relatively modest 0.5 percent pace in the third quarter after 2.8 percent growth in the second quarter. But many are bracing for a steep decline in the fourth quarter of as much as 5.0 percent. This would reflect the sharp drop in consumer spending, an all-time low in consumer confidence and auto sales at their weakest levels in decades. Unemployment is rising, which threatens to continue the downward spiral. "We are in the midst of a major global recession. The economic outlook has deteriorated sharply in the wake of almost unprecedented stress in the core of the global financial system," says Lewis Alexander, chief economist at Citigroup. "Despite a robust policy response, the recovery, when it comes, is likely to be tepid." The International Monetary Fund predicts advanced economies would contract 0.3 percent next year, the first such decline since World War II. The IMF slashed its global growth forecast for 2009 to 2.2 percent, still led by emerging economies although at a weaker pace. It sharply lowered its forecast for the United States in 2009, predicting the world's largest economy would contract 0.7 percent. "The escalating financial crisis that began in August 2007 has pushed the global economy into recession," says Nariman Behravesh, chief economist at IHS Global Insight, who defines a "global recession" as aggregate growth of 2.0 percent or less. "The global economy is experiencing a classic hangover from a credit binge." Recovery is complicated because the financial system is globally interconnected and the regional motors of growth are no longer working. "The world is in a global synchronized slowdown/recession, which intensified with the dramatic worsening of the financial crisis in September," said John Ryding at RDQ Economics. Ryding said the slump will likely be worse than the two longest recessions of the post-World War II period " 16-month contractions in both 1973-1975 and 1981-1982 " unless there is a recovery by May 2009. "Such an early turn in the economy seems unlikely given the global character of the slowdown as evidenced by the decline in manufacturing activity in China in November," he said. The credit crisis first erupted in August 2007 as defaults began rising on US subprime housing loans and led to massive losses for banks and financial firms, prompting a tightening of credit that choked off activity. Losses on subprime and related credit instruments cost the global financial system some 968 billion dollars, including 664 billion in the United States. Problems worsened in February as Wall Street giant Bear Stearns went into a freefall and the Federal Reserve arranged its bargain-basement sale to JPMorgan Chase. The crisis reached hurricane force in September, when the US government was forced to take over Fannie Mae and Freddie Mac " two congressionally chartered, shareholder-owned mortgage finance giants that underpin trillions of dollars in home loans. This was followed by the collapse of Lehman Brothers, another Wall Street giant with trillions of dollars in contracts worldwide, prompting a massive flight to safety by investors and hedge funds, heightening volatility on markets. The firestorm forced the US Congress to pass a 700-billion-dollar package to steady the financial system, which has been used notably to pump capital into ailing banks. As the financial storm spread around the globe, governments rushed to implement stimulus plans and most central banks cut rates, with the Federal Reserve dropping its base rate to a historic low of 1.0 percent. But the credit problems bled into the rest of the economy, hitting retailer and manufacturers, pushing the US auto industry to the brink of collapse with yet another bailout being sought. With the crisis worsening, some say the future appears bleak for American-style capitalism. Republican Senator Jim Bunning said the US government has been propping up companies that deserved to fail.