Morgan Stanley: U.S., Europe Teetering on Brink of Recession

Politicians' bungled policy decisions causing slowdown in economic growth.

Wall Street bank Morgan Stanley revised its growth forecast downward on Thursday and warned the United States and Europe are "dangerously close" to a recession because of policy errors.

The investment services firm revised its global GDP growth forecasts to 3.9% in 2011 and 3.8% in 2012, from 4.2% and 4.5%, respectively, in an emailed statement.

It also forecast a slowdown in emerging markets China, India, Russia and Brazil, with overall growth slowing to 6.4% this year and further to 6.1% in 2012 from 7.8% in 2010.

It said the main reasons for the global slowdown, apart from disappointing economic data, are "recent policy errors in the U.S. and Europe plus the prospect of further fiscal tightening there in 2012."

It referred specifically to what it called the "slow and inefficient response" to the eurozone debt crisis and the drama surrounding the debt-ceiling deal reached by U.S. lawmakers this month, which resulted in Standard & Poor's downgrading the U.S. credit rating for the first time ever.

"This is eroding business and consumer confidence and has weighed down on financial markets. A negative feedback loop between weak growth and soggy asset markets now appears to be in the making," it said.

It added, however, that conditions are still better than before the 2008 financial crisis, saying "any plausible recession scenario in 2011-12 should be much shallower than in 2008-09."

Copyright Agence France-Presse, 2011

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