Goldman Sachs: 20% chance of a full blown world recession

As the US housing slump continues and unemployment rises, America’s slowdown will deepen in the latter half of 2008, according to a measure that predicts the economy’s direction.

The US Conference Board’s index of ‘leading indicators’ fell 0.7% last month - this was triple the fall forecasted by analysts on Wall Street.

The figures come as Goldman Sachs warned that half the world’ economies are either in recession or teetering on the edge of recession.

According to Goldman Sachs, the US, Japan, the eurozone and the UK are all heading towards significant downturns, these economies make up for about half of world output.

International economist, Binit Patel, warned that any slump would have a devastating effect on China, which has been supporting many economies with its demand for raw materials.

Furthermore, Goldman Sachs warned given China’s importance to world growth in recent years, a world recession would in all likelihood involve a hard landing in the country, which would bring down the other half of the global economy and mean financial disaster for billions.

Goldman Sachs believes there is a 20% chance of a full blown world recession.

The French, German and Japanese economies all contracted in the second quarter of the year while in the UK, figures from the Office for National Statistics revealed that economic growth ground to a halt between April and the end of June, representing the weakest performance since 1992 (the tail-end of the last recession).

According to George Buckley, an economist at Deutsche Bank, the weak figures suggest that the UK economy is already in recession.

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