Goldman Sachs give European recession warning

Goldman Sachs piled more misery on Europe today with a warning that the region's economic woes would plunge Germany and France back into recession.

The influential investment bank reckons the eurozone will come to a virtual standstill next year, expanding by just 0.1%. It blamed Europe's sovereign debt woes for slashing its global growth outlook.

It said: "The further deterioration in the economic and financial situation in the euro area has led us to downgrade our global GDP forecast significantly. Over the next few quarters we now expect a mild recession in Germany and France, and a deeper downturn in the euro periphery."

Goldman's forecasts for European stagnation next year contrast starkly with earlier predictions of 1.6% growth. It now expects global growth next year of 3.5%, well short of the 4.2% pencilled in previously.

The latest gloom comes a day after alarm over the health of the global manufacturing sector, which is on the verge of recession according to JPMorgan's activity index. Dire recent surveys have also revealed collapsing confidence among European businesses and stalling growth in France and Germany.

Goldman economists Jan Hatzius and Dominic Wilson predicted the European Central Bank would unwind its two interest rate rises earlier this year by December and also warned of a "40% chance" of a US recession.

"The increase in spillovers from the euro area, primarily via tighter financial conditions, is the primary reason we have also downgraded our forecasts for the US further," they said.