SYDNEY/LONDON — For investors, the worst financial crisis in 80 years has all but eclipsed Tuesday’s US presidential election, although the outcome of the historic vote may offer some market relief with the promise of more fiscal stimulus by the rival candidates.

A deep recession that central banks and governments around the world have tried to ward off with trillions of dollars in bank bailouts, liquidity pumped into frozen money markets and economic pump-priming measures, looms ever larger.

And whether it’s Democrat Barack Obama or Republican John McCain, the new US president will face a huge challenge in reviving the world’s largest economy, which is already contracting.

“We are now deep in the belly of the recession beast,” said Bernard Baumohl, managing director of the Economic Outlook Group.

The US government reported last week that the overall economy, as measured by the gross domestic product (GDP), shrank 0.3 percent in the July-September quarter from the same period last year. Two straight quarters of lower GDP generally mean a recession, and many economists expect the fourth quarter to be worse than the third.

According to economists polled by Reuters, Japan has also joined much of the developed world in a recession—with its GDP seen contracting for a second consecutive quarter as the financial crisis hits exports and capital investment.

Sliding exports to crisis-hit countries and related weakness in company spending have removed two key areas of growth in the world’s second largest economy.

“The Japanese economy entered a downturn phase from early this year and the trough is likely to deepen as the financial crisis further impacts the real economy,” said Takuto Murase, an economist at the Japan Research Institute, who saw a further contraction in the fourth quarter.

Murase said exports would further weaken due to deteriorating economic conditions in the United States and Europe and a slowdown in emerging economies.

The median forecast from a Reuters poll of 11 economists estimated the Japanese economy dropped 0.2 percent year on year in the July-September quarter, after shrinking at an annual rate of 3.0 percent in April-June—its biggest fall in seven years.

The European Commission earlier said the 15-nation euro zone was already in a technical recession and economic growth would come to a virtual standstill next year.

“Each of the big developed economies now is either in a severe recession or well on the way,” said Rory Robertson, interest rate strategist at Macquarie in Sydney.

In the United States, factory activity contracted sharply in October, falling to its lowest point in 26 years. Two Chinese manufacturing surveys also registered all-time lows in October.

“Pretty grim. It means we’re in a recession. It’s as simple as that ... a pretty solid manufacturing recession,” said Robert Macintosh, chief economist at Eaton Vance Corp. “The question is how long or deep is it going to be?”

The world economy remains in poor shape despite synchronized rate cuts by central banks and emergency government packages worth some $4 trillion that may have prevented a banking sector meltdown.

On Tuesday, Australia cut interest rates by 75 basis points, presaging likely reductions in Europe later this week. Australia’s bigger-than-expected rate cut followed similar moves in the United States, China and Japan last week.

Britain and the euro zone are expected to follow suit on Thursday with half-point reductions, or maybe more.

The Australian central bank said there was “significant weakness” in major industrial economies in explaining why it cut rates to 5.25 percent, the lowest since March 2005.

South Korea, which has announced an $11-billion stimulus package to bolster its economy, said a $4-billion currency swap deal with neighboring China would likely be expanded.

Money market rates have declined in Asia, indicating a gradual easing in the strains of the credit crisis. But analysts said that still reflected central bank efforts to add liquidity rather than commercial banks lending to each other.

The credit crunch, which stemmed from a collapse in the US housing market, has prompted banks to clam up on lending to each other, businesses and households for over a year now.

Analysts, however, say the US presidential election may provide some boost to world financial markets.

“Depending on the actual results, the US election may provide some support to markets globally as it may be seen as the promise of more fiscal stimulus, particularly if Obama wins,” currency strategists at Calyon in Hong Kong said.

Obama advocates a second stimulus package to jump-start the US economy. Valued at $175 billion, the plan would include funding for infrastructure and another round of tax rebates.

McCain advocates a $300-billion housing plan that would use some of the funds from the recent $700-billion bailout package to buy up troubled mortgages held by Wall Street.

The president-elect is expected to attend the Nov. 15 summit of world leaders who are expected to chart a way out of the global crisis. The meeting will be hosted by outgoing US President George W. Bush in Washington. Reports from Reuters, The Associated Press and Agence France-Presse; with editing by INQUIRER.net