Morgan Stanley slashes global growth outlook for two years
Published 18/08/2011 | 12:02
Morgan Stanley has cut its global growth forecast for 2011 and 2012 warning that the US and the eurozone are "dangerously" close to a recession.
The investment bank also blamed politicians in Europe and the US for not acting quicker to deal with sovereign debt problems.
The bank has now cut its growth forecast to 3.9pc from 4.2pc for 2011 and down to 3.8pc in 2012.
"Our revised forecasts show the US and the euro area hovering dangerously close to a recession -- defined as two consecutive quarters of contraction -- over the next 6-12 months," said Joachim Fels, who jointly heads up Morgan Stanley's global economics team.
While there are still positives such as lower inflation which will ease pressure on consumers and the potential for central banks to loosen policy further, he said “it won’t take much in the form of additional shocks to tip the balance.
"A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US."
Economic growth in France ground to a halt in the second quarter while Germany is not far behind.
Growth in the 17-country eurozone fell to 0.2pc from 0.8pc in the same period.
And there is growing pressure for the eurozone to look at euro bonds in a bid to deal with sovereign debt problems in big counties like Italy and Spain as well as increasing the area’s rescue fund from €440bn.
Investors also have the jitters about debt problems in the US.
But there are also fears that if the west slips back into recession, China will not be strong enough to support the global economy like it did during the 2008 financial crisis.