By Ambrose Evans-Pritchard

LONDON, England - August 31, 2011 - Global trade buckled suddenly in the second quarter as Europe flirted with recession and Asia came off the boil, while Canada's bellwether economy contracted outright, adding to the darkening picture across the world.

Import growth in the large G7 economies and the China-led BRIC nations fizzled to 1.1% compared to a 10.1% pace in the first quarter, according to the OECD club of rich states.

In the UK, the British Chambers of Commerce reduced its forecast for GDP growth from 1.3% to 1.1% for this year and from 2.2% to 2.1% in the next. It said prospects could improve gradually.

Holland's World Trade Monitor said global commerce contracted by 2.2% in June from the month before. Global trade volumes are back to levels seen in December of 2010, though the falls are not yet comparable with the dramatic collapse in late 2008.

Container Trade Statistics reports that shipping freight rates on the routes from Asia to Europe have dropped to almost zero as a dearth of goods meets a glut of vessels.

Canada's economy shrank 0.1% in the second quarter, hampered by wildfires in Alberta that hit the oil and gas sector and by disruption to Ontario's car industry after the Fukushima nuclear disaster in Japan.

"The Canadian economy is still very fragile," said finance minister Jim Flaherty. "As we all know global economic growth has been softer in recent months."

Mr. Flaherty said the Bank of Canada has scope to cut interest rates below 1% if need be to cushion any downturn, and insisted that the "fiscal fundamentals" remain solid.

There were further signs that Asia is cooling. Korea's industrial output fell 0.4% in July and is now the weakest in 10 months.

Japan's V-shaped recovery from the Fukushima mayhem has also begun to sputter, with industrial production growing far below expectations at just 0.6% in July. "The slowdown suggests that the recovery may have largely run its course and that output may not fully recover its pre-disaster level," said David Rea from Capital Economics. The global economy appears to be at a key inflexion point - or a "dangerous new phase" in the words of the International Monetary Fund.

America's ISM manufacturing index to be released today is the most closely watched gauge in the world. If it falls from 50.9 in July to below the contraction line of 50, it will greatly increase fears of a fresh slump.