Eurozone demand is plunging and price pressures vanishing, business surveys showed on Friday, while central bankers weighed the bleak prospect of deflation. The Bank of Japan left its key interest rate at just 0.3 percent and said there would be a long road to recovery. The United States, Britain and Europe are expected to ease their rates further next month as the worst financial crisis in 80 years hastens recession across much of the globe. BoJ Governor Masaaki Shirakawa said he was on watch for the risk of deflation as Japan lapses into recession, although he did not forecast its return. “The global economy is expected to experience a severe adjustment for some time,” he told reporters. St Louis Federal Reserve President James Bullard said with interest rates already low, the US central bank may have to rely on “quantitative easing” to ward off deflation, recalling large BoJ liquidity injections during the 1990s to jump start the economy by flooding it with cash once rates reached zero. “It would take some doing to get some deflation. But what I do think is the inflation expectations are very fluid right now,” he told a regional economics conference. “If we do our job it won't happen and we're dedicated to that. The Fed is expected to cut rates to 0.5 percent next month. Japan's decade-long battle with steadily falling prices and economic stagnation looms large in officials' memories. Reversing recession is doubly difficult if prices fall broadly and constantly because there is no incentive to spend as consumers and firms know things can only get cheaper. With banks already reluctant to lend - after a US housing market collapse caused many to sustain huge losses and some to fail - deflation would represent a perfect economic storm. European Central Bank Governing Council member Yves Mersch told the Dow Jones news agency that euro zone prices could fall next year although he did not expect broad-based deflation. “I would not rule out that over one or two months we might have a falling price index,” said Mersch, governor of the Luxembourg central bank. In the 15-nation euro zone, manufacturing and service activity shrank sharply and inflation pressures vanished. The Markit Eurozone Purchasing Managers composite index tumbled to a record low of 39.7 in November, below the 50 mark that divides growth from contraction. The data will strengthen expectations the ECB will cut rates by at least 50 basis points when it meets in December. The survey confirmed inflation was evaporating -the prices charged index slipped to 47.6, its lowest level since July 2003. “Deflation risks also grew, with prices charged by producers and service providers falling at the fastest rate for over five years,” said Chris Williamson at Markit. Central banks, faced with a sudden collapse in growth as well as inflation, have slashed rates and are expected to keep doing so, although economists warn they may run out of rope before prices hit rock-bottom. The Organization for Economic Cooperation and Development forecast earlier this month that deflation would return to Japan next year, although it saw only a slight risk of it elsewhere. How quickly the world changes. Bank of England Governor Mervyn King responded to accusations this month that his rate-setters had acted too late in slashing interest by 1.5 points, by noting that only three months earlier he had been charged with letting inflation, then closing in on 5 percent, spiral out of control. Now the Bank sees UK inflation below 1 percent in two years. Stock markets rebounded from five-year lows, buoyed by expectations for further cut rates, prompting investors to cover short positions before the weekend. Japan's Nikkei average added nearly 3 percent, European shares were up 1.5 percent and US stock futures pointed to a sharply higher start on Wall Street. “Actions are being taken which are encouraging - interest rates are being cut, the monetary system is being repaired, with LIBOR easing; banks are being supported,” said Justin Urquhart Stewart, director at Seven Investment Management. “The actions being taken are the key difference between the 1930s and now.” US banking giant Citigroup, which has lost half of its market value this week, is weighing various options including selling part of the company or merging with another firm, a person familiar with the situation said. Citigroup said it had a “very strong capital and liquidity position,” and Saudi Prince Alwaleed Bin Talal said on Thursday he planned to up his stake in the bank to 5 percent from less than 4 percent, calling its shares “dramatically undervalued.” The bank's shares rose 3 percent in Frankfurt on Friday.