The Bank of Japan and the country's law makers have said the economy is in a slump as Europe's debt crisis weighs on external demand.

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Severe external pressures, such the eurozone debt crisis, weak US growth and rising oil prices, had led to a "dramatic change" in the international situation in the past six months, he acknowledged.

BBC: Clegg warns that economic situation is deteriorating

The housing market and the larger economy were still subject external shocks including the debt ceiling debate, the European Crisis and unexpectedly strong austerity by State and Local governments.

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Brazil's new president, Lula da Silva, said the big spending cuts he announced this week, aimed at raising the government's primary surplus (ie, before debt-service costs), would help the country survive a coming external crisis.

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