In a research note titled 'Dangerously Close to Recession', Morgan Stanley cut the global GDP growth forecast for 2011 to 3.9% from 4.2% and its 2012 estimate to 3.8% from 4.5%. For the euro zone, the growth estimate for 2011 was lowered to 1.7% from 2% and its 2012 estimate to 0.5% from 1.2% earlier.

Mr Joachim Fels, who co heads Morgan Stanley’s global economics team, in a research note that "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 to 12 months. A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US."

Mr Fels estimated that the brokerage also slashed its forecast for India’s 2012 GDP growth to 7.4% from 7.8%. Growth in emerging market economies will also slow to 6.4% in 2011 from 7.8% in 2010. He added that this means that emerging market economies, which now account for half of global GDP, will generate 80% of the global GDP growth that Morgan Stanley is forecasting for 2011 and 2012.

Adding to the pressure was Goldman Sachs, which also lowered its global gross domestic product forecast. The brokerage said it now expects 4% growth in 2011 and 4.4% in 2012 as compared with earlier estimates of 4.1% and 4.6%, respectively.

The brokerage house cut its 2011 GDP growth forecast for the US to 1.7% from 1.8% and for 2012 to 2.1% from 3%. For Europe, Goldman cut its 2011 GDP estimate to 1.9% from 2.1% and its 2012 estimate to 1.4% from 1.7%.

After the US lost its sterling AAA credit rating, investor attention has shifted to France, primarily because of the high levels of investment of its banks in the government bonds of the region’s troubled economies such as Greece. With France, the fear is that the debt contagion may start affecting even the large economies of Europe.

(Sourced from www.reuters.com)