January 10, 2008 | posted by Michael Baxter in UK economy, credit crunch |

The analysts at Goldman Sachs must have been in a bad mood of late, for in the last two days they have predicted recession for both the US and Japan.

You will recall, earlier this week Merrill Lynch said the US was already in recession. Well, Goldman Sachs is not going that far, but it does reckon the US will grow at just 0.8 per cent this year - that’s down from its previous estimate of 1.8 per cent. Remember, a recession is defined as two quarters of successive negative growth, which is quite possible if annual growth is just 0.8 per cent. In fact, the bank reckons the second and third quarters of this year will be a period of negative growth.

You could be forgiven for asking, but why is growth so essential. If the US is prosperous anyway, then even small growth has got to be a good thing. The trouble with that argument is that productivity is rising fast, so if productivity rises faster than growth, unemployment will follow.

And then, taking its eyes off the US, Goldman Sachs cast its gaze to Japan and said there’s a 50/50 chance of recession in the world’s second-biggest economy.

Tetsufumi Yamakawa, chief Japan economist at the bank said in a report, “The probability of a recession in Japan has risen to the danger level.”

So what are we to make of it? If the world’s largest and second-largest economies hit recession, what does that mean for the global economy? Well, calm down dear.

The World Bank now reckons the global economy will expand by 3.3 per cent in 2008, with China topping 10 per cent growth - again.

Hans Timmer, co-author of the World Bank report ‘Global Economic Prospects 2008′ said, “Strong import demand across the developing countries is helping to sustain global growth. As a result and given a cheaper US dollar, American exports are expanding rapidly. This is helping shrink the US current account deficit and is contributing to a decline in global imbalances.”