There is a near one in three chance the world economy will slip back in to recession this year as low oil prices and extraordinary monetary stimulus have a dwindling impact on global growth, Morgan Stanley has warned. 

The US investment bank said a "low growth environment" had made the world vulnerable to a litany of shocks, including fears that central banks have lost control over domestic financial conditions, while rising political risks from Europe to the Middle East threaten to overwhelm governments. 

Global growth is forecast to hit just 3pc this year, down from Morgan Stanley's earlier estimate of 3.3pc, with advanced world growth falling to 1.5pc. 

Japan received the biggest single downgrade of any country, with GDP slashed in half to just 0.6pc from 1.2pc.

Global GDP fell to 2.3pc in the last quarter of 2015 - below the 2.5pc threshold which marks a recession - forcing Morgan Stanley to raise their global recession risk probability from 20pc to 30pc. 

"The renewed slowdown in global growth late last year has pushed the risk of a recession higher," said Elga Bartsch at Morgan Stanley. 

Despite a record crash in global oil prices over the last 20 months - widely seen as a tax cut for the world's oil consumers - the positive effects of lower oil prices were not as pronounced as previous eras, said the investment bank.

It noted that fuel high taxation in many countries meant many consumers were failing to see the full benefits at the pumps, while investment was collapsing in major producer countries such as the US. 

Contrary to many expectations, consumers in the advanced world have also failed to spend the windfall from lower prices, opting instead to pay down debts and save. Lower consumption levels have thus weighed down on economic activity. 

"The global economy does not seem to be as responsive [to lower oil prices] as it has been in the past", said Ms Bartsch. 

Their bearish outlook was also driven by the inability of central banks "to pull the global economy out of its low-growth, lowflation rut". 

David Fuller's view

Of course a 30% global recession risk means there is a 70% chance it will not happen, and even if it does, that arbitrary 2.5% threshold mentioned above is hardly a disaster.  Some countries can only dream of 2.5% GDP growth this year, including Japan, most of the EU and the USA may even dip beneath that level. 

What is wrong with the global economy? 

Everyone will have their own answers to this question but clearly there is plenty of uncertainty.  Concerns over China, the Middle East, the EU, Russia, banks, and troubled resources producers are understandable, but there are always problems somewhere in the global economy. Moreover, there is also the astonishing good news of accelerating technological innovation, affecting just about everything we see, including lower energy prices. However, new technologies are also disruptors, as we can also see.

I think a significant cause of our current uncertainty is more mundane and comes from what has been widely described as the ‘worst ever’ start to the year by Wall Street and many other stock markets.  How could that not cause investors, corporations and consumers to become more cautious?   It was certainly a warning for investors and also corporations which saw their shares fall rapidly.  Consumers were more optimistic at yearend, not least because of the sales.  However, retail sales have slowed more recently.

This mood of funk could easily persist for a while longer, leading to mostly ranging stock markets.  That is not a bad environment but caution may be warranted when stock market rallies lose momentum in areas of previous resistance.