Thursday, August 18, 2011

Analysis: Is Recession Dangerously Close? (Yes, says Morgan Stanley)

Europe and America are on the brink of recession. Or at least they are according to Morgan Stanley.

In a rather ominously-titled research note - 'Dangerously Close To Recession - the investment bank cut next year's world growth forecast and forecasts for pretty much every major economy, including not just the euro area but also China and India.

In one sense, this analysis is quite right - the world economy is facing the prospect of a double-dip slowdown.

That, in the end, is what is spooking markets these days, along with the compounding issue that politicians seem incapable of addressing their deficits.

We have been well aware for some time that the crisis did not end in 2008; that banking debts were instead merely transferred across to sovereign balance sheets, setting us up for a far bigger crunch at some point in the future.

And there is no doubt that should the world's big economies slow down - as indeed they have done in the second quarter of the year - we will all feel the impact. (more)