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US and eurozone 'dangerously close to a recession'
  Hedgeweb - THU, AUG 18 2011
News Morgan Stanley has slashed its global growth forecast for 2011 and 2012, saying the US and the eurozone were "dangerously close to a recession".

The bank also attackd policymakers in Washington and Europe for not acting more decisively to contain the sovereign debt crisis.

It cut its global gross domestic product growth forecast to 3.9pc from 4.2pc for 2011, and to 3.8pc from 4.5pc for 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," Joachim Fels, who co-heads Morgan Stanley's global economics team, said in a research note.

That was not the bank's base case scenario, he said, noting the corporate sector still looked healthy and lower inflation will ease pressure on consumers' pocketbooks, while central banks such as the Federal Reserve and European Central Bank could try to loosen policy further.

Still, "it won't take much in the form of additional shocks to tip the balance," he said. "A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US." On Tuesday, Germany reported that its economic growth came close to stalling in the second quarter, while data from France last week showed its growth had ground to a halt, raising questions over how much drive can be expected from Europe's top economies.

Morgan Stanley left its 2011 growth forecast for China unchanged at 9pc, versus 10.3pc last year, but dialled back growth expectations slightly for Russia and Brazil.

If the West does slump back into recession, or a prolonged period of meagre growth, analysts say China may not be in a position to reprise its role in supporting the global economy as it did in 2008, when it announced a massive stimulus programme.

Inflation unexpectedly quickened in China in July, putting pressure on the central bank to keep prices in check with more interest rate rises even as its robust growth showed signs of cooling.

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