The European debt crisis and global challenges have cast a pall over the Swiss Alpine resort town of Davos unlike anything experienced before at the World Economic Forum, leading economists said.

"The mood here is one of depression and gloom and no one is sure if the future will be any better," Muhammad Yunus, a Nobel-winning Bangladeshi economist and founder of Grameen Bank, told China Daily at the forum.

Yunus won international acclaim for providing micro-credit to people with little or no collateral.

A frequent speaker at the forum, which has been held since 1971, Yunus said that this year's atmosphere was the worst in his memory. "I found that confidence (among attendees) has fallen to its lowest level," Yunus said. "There has never been a more critical time since the forum started."

During discussions with politicians, academics and business leaders, Yunus said that the same issues, failing financial systems, the European crisis and concerns over the environment, are raised.

"People don't have confidence in the current global system now. This may be the chance to redesign the system," Yunus said.

Having attended the forum for three consecutive years, Yan Xuetong, dean of the Institute of Modern International Relations at Tsinghua University, told China Daily that he also sensed the gloomy atmosphere at Davos.

"I think confidence is perhaps still falling and has not reached its lowest level," Yan said.

Europe may struggle to come up with solutions this year and the situation may yet worsen, he said.

But Jin Canrong, professor of international studies at Renmin University of China, had a different point of view. "Based on my observations, Europe, the United States and Japan will maneuver out of their difficulties and hopefully confidence will recover soon," Jin said.

Jin said the forum is designed to be a "fact-seeking and note-comparing" exercise for Western countries. "They may take more concrete action after they have a better understanding of this rapidly changing world," Jin said.

Jin's judgment found resonance in a speech by German Chancellor Angela Merkel.

During a keynote address at the forum's opening, Merkel said that the European Union will develop proper political structures to ensure the euro's viability.

"The message is that we are ready for more commitment," she said. "We are no longer making excuses. We have taken some steps closer to a fiscal union, but we can go faster, gain speed and become more decisive.

"I'm absolutely convinced that we will get out of this crisis."

However, on the eve of the forum, the International Monetary Fund (IMF) sharply cut its forecast for world growth this year. Prospects have dimmed and risks to financial stability have increased with intensifying strains in the euro area weighing on the global outlook, the IMF said.,

In an update to its World Economic Outlook, the IMF said that the euro area would fall into recession in 2012 after the euro area crisis entered a "perilous new phase" toward the end of last year, affecting other parts of the world including the US, emerging markets, and developing countries.

"The outlook for growth is mediocre, and it could be worse," wrote Olivier Blanchard, the IMF's economic counselor and director of the research department, on its website. "The world recovery, which was weak in the first place, is in danger of stalling. The epicenter of the danger is Europe, but the rest of the world is increasingly affected."