Morgan Stanley cuts global growth forecast for the year
The bank estimates expansion of 3.9%, down from a previous forecast of 4.2%.
The threat to the global economy from the debt burdens of developed nations from the US to Europe has caused turmoil on the world markets this month and wiped trillions of dollars off the value of equities.
The US and Europe are “dangerously close to recession”, Morgan Stanley analysts reported. “Recent policy errors, especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling, have weighed down on financial markets and eroded business and consumer confidence.”
In the eurozone, “broadly stagnating” growth later this year and in early 2012 will mean “it won’t take much to tip the balance towards recession, especially as a final resolution of the debt crisis — in the form of fiscal transfers or common bond issuance — is likely to be very slow in coming”.
The bank cut an estimate for China’s growth next year to 8.7% from 9%. Deutsche Bank trimmed a prediction for this year to 8.9% from 9.1%, and a forecast for 2012 to 8.3% from 8.6%.
“In the near term, the single most important shock to the Chinese economy will be the likely slowdown — or even recession — of the EU and US economies,” Deutsche Bank economist Ma Jun said in a note.
German chancellor Angela Merkel and French president Nicolas Sarkozy this week ruled out steps such as the issuance of euro bonds or expanding a bailout fund to counter the European debt crisis.
Pacific Investment Management, the world’s biggest bond fund manager, said European politicians should let Greece, Ireland and Portugal default while taking steps to ensure Italy and Spain won’t.
“A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US,” the analysts said. “This should be aggravated by the prospect of fiscal tightening in the US and Europe.”
France’s growth stalled in the second quarter, while the German economy gained 0.1% from the first quarter.
In the US, the Federal Reserve has pledged to keep interest rates at a record low through mid-2013, indicating that the world’s biggest economy will continue to need support.
