The probability of a global economic recession this year is as high as 20 percent in a worst case scenario, US investment bank Morgan Stanley said on Tuesday. Its economists said soft consumer demand in the United States and Japan and weakness in emerging markets due to worries over plunging oil and commodity prices and capital outflows from China were among the main risks.
A global recession is loosely defined as growth below the roughly 2.5 percent needed for the world economy to keep up with an expanding population. "Two and a half percent seems to be the danger area for global recession, because historically that is the real GDP growth rate where you see GDP per capita go negative," said Elga Bartsch, Morgan Stanley's global co-head of economics.
"Our base case is for a modest recovery to 3.3 percent. But the risks are skewed to the downside and appear to have risen recently." On Tuesday, the International Monetary Fund cut its forecasts for global growth to 3.4 percent this year and 3.6 percent next, the 16th time it has done so in its last 21 World Economic Outlooks and WEO Updates. Official figures meanwhile showed China's economy grew at its slowest pace in quarter of a century last year. Earlier this week, economists at French bank Societe Generale assigned a 10 percent probability to the risk of a global recession.