The global economy is likely to be stuck in the "twilight zone" of sluggish growth in 2013, Morgan Stanley has warned, but if policymakers fail to act, it could get a lot worse.
The bank's economics team forecasts a full-blown recession next year, under a pessimistic scenario, with global gross domestic product (GDP) likely to plunge 2 percent.
"More than ever, the economic outlook hinges upon the actions taken or not taken by governments and central banks," Morgan Stanley said in a report.
Under the bank's more gloomy scenario, the U.S. would go over the "fiscal cliff" leading to a contraction in U.S. GDP for the first three quarters of 2013. In Europe, the bank's pessimistic scenario assumes a failure of the European Central Bank (ECB) in cutting rates and a delay of its bond-buying program.
But the bank says investors should also be nimble, in case policy action is "convincing and decisive," leading to a big uptick in growth.
"Importantly, investors should keep an open mind and be prepared to switch between the scenarios as policy developments unfold." Read More >>
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