Stock markets dropped last week worldwide as pessimism dominated investors over the outlook for global economies and accordingly Asian markets continued to fall deeply this morning ahead of manufacturing data from Europe and the income report from the United States.

The euro zone largest economy Germany continues to fall deeper in recession amid the worst financial crisis since the Great Depression, Germany will release the manufacturing purchasing mangers index for the month of February, which is expected to remain unchanged at 32.2, meanwhile PMI manufacturing for the euro zone is also expected to remain unchanged at 33.6.

The euro zone continues to feel the pinch from the ongoing financial crisis as its major economies are still in recession, while the outlook does not look that pretty either, especially as the crisis continues to reveal further destruction and continues to lead global economies deeper in recession.

Downside risks to inflation has become a major concern for investors and analysts recently, as energy and other commodities prices continued to fall amid expectations of slowing global demand, especially oil prices which plunged more than 60% from their record highs, as global demand softened amid the ongoing recession, which also played its part in suppressing prices and accordingly deflation risks started to emerge in the horizon.

Though deflation is yet to materialize but it remains a possibility, and accordingly central banks slashed their interest rates in order to avoid deflation, yet the European Central Bank opted for a different strategy to battle the crisis as it remained rather rigid in cutting interest rates despite that major economies in the euro area continued to fall deeper in recession.

The euro zone will release today their consumer price index flash estimate for the month of February; CPI is expected to rise 1 percent only down from the prior 1.1 percent rise reported back in January, as low oil prices and the ongoing recession continued to weigh down on prices.

The European Central Bank will probably cut its interest rates later this week in a move that could prove to be rather late, as the ECB dismissed voices that were calling for an interest rate cut last month and opted to delay the decision till this month’s meeting.

The U.K. will also be releasing the manufacturing PMI for the month of February which is expected to drop to 35.0 from the prior estimate of 35.8, as economic activity continues to weaken further in Europe’s second largest economy.

The U.K. will also release their net consumer credit for the month of January which is expected to rise to ?0.5 billion from the prior estimate of ?0.3 billion, while mortgage approvals are expected to have risen to 33 thousand form the prior estimate of 31 thousand.

The U.S. economy continues to fall deeper in recession and accordingly it continues to weigh down on global growth, as demand from the United States continue to falter amid the worst financial crisis since the Great Depression and the ongoing recession.

Personal income is expected to have dropped in January by 0.2 percent inline with the prior estimate, as companies continue to lay off workers amid the ongoing recession, while personal spending is expected to have risen by 0.4 percent after falling 1.0% back in December, as the post holiday sales lured consumers to spend their money, although job losses continued to mount and credit conditions continued to tighten.

Tighten credit conditions, rising unemployment, falling home values, and declining stocks have been weighing down heavily on economic growth in the world’s largest economy, especially after Black September which saw the failure of Lehman Brothers and sent global money and credit markets tumbling to the ground.

Inflation continues to ease in the United States inline with other economies around the world, as falling oil prices in addition to the ongoing recession managed to weigh down on prices, the U.S. will release today their core personal consumption expenditures for the month of January, the Fed’s favorite indicator for inflation.

Core PCE is expected to have risen in January by 0.1% up from the prior unchanged estimate, while compared with a year earlier core PCE is expected to have risen by 1.6 percent down from the prior estimate of 1.7 percent.

The Institute for Supply Management will also release their manufacturing index for the month of February; activity in the manufacturing sector is expected to have slowed further in February as the recession deepened to 34.0 from 35.6.

On the other hand construction spending is expected to have dropped by 1.5 percent in January after falling by 1.4 percent back in December, as the sector continues to suffer the worst slump since the Great Depression, which continues to lead the whole sector down to the ground.