Morgan Stanley sees a higher chance that the global economy will plunge into recession this year, raising the likelihood to within the next year to 30 percent from 20 percent.

The U.S. bank also cut its baseline forecast for world economic growth to 3.0 percent in 2016.

"The renewed slowdown in global growth late last year has pushed the risk of a recession higher," said Elga Bartsch at Morgan Stanley. "The global economy does not seem to be as responsive [to lower oil prices] as it has been in the past," said Bartsch.

"While we don't believe that a global recession is likely this year, the declining impact of lower oil prices and easier monetary policy on growth starts to worry us," said the Morgan Stanley economists.
 
"The global economy is still stuck in a low-growth environment characterized by weak demand dynamics, subdued investment spending, low inflation rates, elevated unemployment, as well as modest wage and productivity gains. This leaves us vulnerable to shocks," said Morgan Stanley.

"Repeated easing initiatives seem to have a diminishing effect on financial markets, portfolio reallocation and economic sentiment," said Bartsch.

Morgan Stanley attributed the downgrade to a slowdown in developed market growth led by the U.S. It now forecasts that U.S. economic growth will slow to 1.7 percent this year and 1.6 percent next, from 2.4 percent in 2015, CNBC reported.

“Our economists put the probability of global recession at 30%, the highest of this cycle. While the U.S. remains our favored equity market on the theory that it will command a premium in a low-growth, choppy market, its premium could be at risk if a full-blown recession causes the market to sell anything trading at a premium,” the analysts said.

“[The] U.S. offers best defense in equity markets — more reliable growth,” the analysts said.

But others are more optimistic and don’t fear we’re headed to a recession.

For example, truckers, rail operators and airlines — the groups represented in the Dow Jones Transportation Average — have done a U-turn since slumping to a two-year low on Jan. 20, three weeks before broader market indexes bottomed. They’ve outpaced the Standard & Poor’s 500 Index by 6.6 percentage points since then, maintaining their lead during a rally that’s restored more than $1.5 trillion to U.S. equities since Feb. 11, Bloomberg reported.

For David Joy, chief market strategist at Ameriprise Financial Inc., which oversees $766 billion, the early rally in transportation stocks validated the group’s reputation as a leading indicator of economic strength. Data since the industry bottomed has reduced recession anxiety, with reports showing a surge in hiring, a respite from manufacturing weakness and continued strength in the American consumer.

“There was clearly a signal in transports that may not have been so apparent if you weren’t paying attention,” Joy told Bloomberg. “They’re obviously a high-beta sector and general proxy for overall economic activity. The fact that the group is attracting some interest is also an important signal, at least temporarily.”

(Newsmax wire services contributed to this report).

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