Europe Crisis may Lead to Recession: Morgan Stanley

By siliconindia   |   Tuesday, 29 November 2011, 19:42 IST
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Bangalore: Due to the increasing debt troubles in Europe and U.S., it is anticipated by Morgan Stanley that they are downsizing towards their risks to global growth and this will ultimately lead them to recession. The bank has predicted that their growth will economize to 3.5 percent from 3.8 percent, which has just slimmed down from 4.5 percent in the last three and a half months. Morgan Stanley has also projected the same downfall of 6.9 percent from 7.3 per cent for Asia ex-Japan.

According to reports from Morgans, as they downgraded their regional growth outlook in August 2011, they have been constantly worried about the increasing downside risks to growth and are also concerned about their growth due to many factors such as the weak domestic demand and the external environment in Europe.

Even Asia is not safe from this global slowdown, predicts the Morgans. The bank noted that Asia’s trade and financial link with the rest of the world made it susceptible and defenseless from the global economic trim. It said, “The prospects of further fiscal tightening and weaker domestic demand in Europe will translate into weaker external demand growth for the region; which will ultimately lead it to the downfall.”

"Our economics team in Europe now expects a recession in Europe while the U.S. economy is expected to continue growing below its trend," said Morgan Stanley.

Not only Morgans but many others such as Goldman Sachs also warned that Europe’s debt problems are rolling over into household and corporate credit. This may turn into a mature recession similar to the 2008-09 global recessions. Experts say that the Europe’s economy has likely to begun contracting in the third or fourth quarter. Russell Jones, Global Head of Fixed Income Strategy at Westpac international Bank told CNBC that the European economy is already essentially in recession, and U.K. is likely to follow behind.

It is recommended for the investors to stay in U.S. treasuries, Gilts, Nordic and Australian government bonds to stay away from the dour global economic environment.

Greg Bundy, Senior Advisor at Australian financial advisory firm AIMS Finance said, “Something happened in the past week to ten days globally. And I think you'll see a lot of earnings estimates downgraded. I think you'll see a lot of targets on commodities downgraded. Once again the slowly recovering US economy will probably be pushed back even further in terms of when you can get back on track.”

It’s been stated by Morgans that this chronological downfall has begun since Mar 2011. Asia’s domestic indicators, such as auto, retail, property sales as well as manufacturing activity (PMI) were also pointing to a declination.