Goldman Sachs Says Half of the World Economy Faces Recession

By Simon Kennedy

Aug. 21 (Bloomberg) -- Goldman Sachs Group Inc. said countries that account for half of the world's economy face a recession a year after the credit crisis began.

The U.S., Japan, the 15-nation euro area and the U.K. are ``either in recession or face significant recession risks in the months ahead,'' Goldman's London-based international economist Binit Patel said in a report to clients today.

A year since the U.S. housing slump sparked about $500 billion in credit market losses for banks globally, the world's largest economies are all stumbling as rising borrowing costs combine with record commodity prices to sap growth. The U.S. is close to a recession and France, Germany and Japan all contracted in the second quarter.

Economists at UBS AG led by Larry Hatheway this week cut their forecast for global growth next year to 2.9 percent from 3.1 percent, close to the 2.5 percent deemed a world recession, while those at JPMorgan Chase & Co. say this quarter's estimated 1 percent expansion will be the slowest since mid-2001.

Patel estimates the chances of a global recession at no more than 20 percent given his expectation that China's economy will continue to grow about 10 percent this year and next.

``Continued robust, albeit slowing, growth in China and the rest of the emerging markets'' will deliver world growth of 3.6 percent next year after 3.9 percent in 2008, said Patel, who estimates emerging markets account for the other 50 percent of the world economy.

To contact the reporters on this story: Simon Kennedy in Lindau, Germany, at skennedy4@bloomberg.net