The brokerage also pointed to elevated commodity prices, an over valued euro exchange rate, and ongoing tensions in the periphery.
Morgan Stanley also lowered its 2011 GDP growth forecast for the euro zone to 1.7% from a previous estimate of 2%, and its 2012 estimate to 0.5%, from 1.2% previously. For China, Morgan Stanley downgraded its 2012 GDP growth estimate to 8.7% from 9.0%.
This comes at a time when global equity markets have been roiled by concerns about European sovereign debt contagion and global growth prospects, following a string of less-than-inspiring economic data out of the U.S., the euro-zone and the U.K.
This, together with last week's French data showing flat second-quarter growth, suggests that core euro-zone economies were close to stalling. In terms of equities, Morgan Stanley remains cautious and is 'underweight' cyclicals.
And it was a double whammy Thursday, with Goldman Sachs also making downward revisions to its global GDP growth forecasts. The brokerage cut its 2011 GDP growth forecast for the U.S. to 1.7% from 1.8% and for 2012 to 2.1% from 3.0%. For Europe, Goldman downgraded its 2011 GDP estimate to 1.9% from 2.1% and its 2012 estimate to 1.4% from 1.7%.
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).
The world economy is facing the prospect of a double-dip slowdown.
To understand why, we need to look at money growth figures.
Money statistics measure the amount of cash flowing around an economy (in particular cash and current account balances).
The Bank of England monitor these obscure statistics, and economic theory (the quantity theory of money, to be precise) says there is a direct relationship between money growth and the overall expansion of an economy (GDP).
The ECB’s decision to raise rates in April looked rash at the time; in retrospect, it looks heinous.
Morgan Stanley’s warning is right: the developed world is on the brink of recession.
UK borrowing costs remain low, the economy is still expanding - albeit very sluggishly - and Morgan Stanley believes Britain is one of the few countries not on the brink of recession.
Analysts Joachim Fels and Manoj Pradhan cut their global GDP growth forecasts to 3.9% in 2011 (from 4.2%) and 3.8% in 2012 (from 4.5%).
The analysts now see emerging market growth slowing from 7.8% in 2010 to 6.4% (6.6% previously) in 2011, and decelerating to 6.1% (prior 6.7%) in 2012.
A negative feedback loop between weak growth and soggy asset markets now appears to be in the making.”