Global economy is sliding into recession: UBS, JPMorgan

The world economy is sliding into its first recession since 2001 as the credit crisis hammers consumers and companies, said economists at JPMorgan Chase & Co and UBS AG.

Global growth stumbled in the last quarter and will hover around zero through the fourth quarter and the first three months of 2009, meriting the description of “mild recession,’’ JPMorgan economists David Hensley and Joseph Lupton said in a report. UBS AG economists led by Larry Hatheway predicted expansion worldwide of 2.2 per cent next year, below the 2.5 per cent level they view as a global downturn.

“The world economy is slipping into recession,’’ the UBS economists said in a report to clients in which they cut their forecast for 2009 expansion from 2.8 per cent. The credit crisis is gathering speed after the collapse and bailout of banks in the US and Europe propelled the cost of borrowing in money markets to its highest ever. That’s making it harder and costlier for companies around the world to secure loans.

“Sufficient damage has been done to depress global activity for some months to come,’’ the JPMorgan economists said. They predict worldwide growth of 1.2 per cent next year and 2.1 per cent this year.

How to rescue growth forms the agenda for talks today in Luxembourg of European finance ministers and in Washington on October 10 when Group of Seven finance chiefs and central bankers meet. These officials likely have the hardest work, with Merrill Lynch & Co forecasting developed economies to be the weakest next year.

Alex Patelis, chief international economist at Merrill Lynch, estimates the developed world will grow 0.6 per cent next year, the weakest since 1982, while emerging markets will grow 6.1 per cent, the slowest since 2003. The gap is four times the average of the 1990s, he said.

He predicts overall growth of 3 per cent, which he described as “awfully close to a global recession.’’ With expansion collapsing, economists are predicting central banks will cut interest rates as inflation worries ease. Those at UBS predict the Fed to halve its benchmark to 1 per cent by April and the European Central Bank to cut its main rate to 3 per cent from 4.25 per cent by the end of next year.