Futures indicated a sharp drop on Wall Street, with futures down 550 points, the maximum daily price change.
In the European morning, Germany's benchmark DAX index was down a massive 10.76 percent at 4,033.27. The French CAC40 down 10 percent at 2979.95 while Britain's FTSE 100 was 8.67 percent lower at 3,733.33 after third quarter GDP fell 0.5 percent, putting the country on the brink of recession, which is technically defined as two quarters of negative growth. The previous quarter's growth was 0.0 percent.
Japan's Nikkei 225 stock average slid 9.6 percent to 7,649. U.S. stock index futures were down sharply. On Thursday, the Dow rose 2 percent to 8,691.25.
Quarterly earnings have been poor so far, with profit warnings coming thick and fast across all industries. Shares in Europe's automotive companies fell hard on worrying third quarter figures, with truck-maker Volvo AB down 19 percent and PSA Peugeot-Citroen falling 12.4 percent. Daimler AG and Fiat Spa also warned about profits.
But heavy industry was not the only sector to feel the pain, with the likes of Sony also warning of tough times ahead. Its shares slid 14 percent in Asia.
The sudden gloom over growth expectations is having the added impact of putting small economies and currencies under extreme pressure. Investors are pulling money out of countries in Eastern Europe, Latin America and Asia on fears vulnerable countries will not only be hit hard by the financial crisis but may also default on debt.
"Periods of panic punctuated by occasional calm appears to be the manner of things for now," said Daragh Maher at Calyon.
He said that as investors flee economies they view as less stable, the repatriation of money has boosted the dollar to the detriment of smaller currencies.
"For now this means much of the focus is on the International Monetary Fund and what it might have in mind to insulate emerging markets, given that they are now the clearest pressure point," said Maher.
Markets are afraid that the world may see more countries go the way of Iceland, whose economy effectively collapsed this month after its financial sector went bankrupt.
In Europe, for example, Hungary, Ukraine and Belarus are all, like Iceland, in talks with the IMF to discuss possible loans.
The euro, which investors consider very exposed to the vulnerable Eastern European markets, fell to a two-year low against the dollar, dipping below the US$1.25 level. The British pound dropped to US$1.5264 against the dollar, the weakest since August 2002.
The dollar fell against the yen, however, as low as 90.89 yen, the weakest since August 1995. This is because the yen is used a currency to fund riskier investments - it is sold to raise cash to put in higher growth areas. When investors are scared of losing money in emerging markets, they undo those trades, buying the yen back. This flow intensified Friday, leading some to wonder whether governments and central banks may intervene in foreign exchange markets.
"We are getting used to wild swings in the markets, but today's moves verge on the bizarre," said Julian Jessop, chief international economist at Capital Economics.
He said direct intervention in currency markets could be warranted, since a rate cut by the central bank to support stock markets would do little, considering Japan's interest rates are already at just 0.5 percent.
Elsewhere in Asia, Hong Kong's Hang Seng index fell 8.3 percent to 12,618. Markets in India, Thailand, Indonesia and the Philippines were also down sharply as investors bailed from emerging markets to cut their exposure to risky assets and meet redemption needs at home.
"Funds are pouring out of emerging markets," said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. "A lot of money that flowed into the region during the last five years from the U.S. and Europe is being cashed out.
On top of all this, the Organization of the Petroleum Exporting Countries Friday cut its output by 1.5 million barrels a day as of next month in an effort to keep oil prices higher.
Light, sweet crude for December delivery today traded around US$64 a barrel, over 50 percent less than this year's historic heights because the worldwide economic crisis has put a huge crimp in demand for crude.
Lower energy costs help economic growth at a difficult time, so the production cut's effort to boost oil prices was not welcomed by stock markets.
AP writer Alex Kennedy in Singapore, Shino Yuasa in Tokyo and Kelly Olsen in Seoul contributed to this report