SINGAPORE (AFP) - The US economy is "one shock away" from a recession, and a prolonged global equity meltdown may tip the scales, the US-based investment bank Lehman Brothers said Tuesday.
However, it is still "too early to pass judgment" on the situation, Paul Sheard, Lehman Brothers' global chief economist, told reporters. "It could be a self-fulfilling prophecy."
He spoke as global stock markets took another battering Tuesday, with losses of almost nine percent in Hong Kong on fears of a US recession, followed by sharp plunges in Europe.
European exchanges on Monday suffered their biggest one-day falls since September 11, 2001.
"If that were to continue for a couple of weeks, I think it could seriously start to change the complexion of the global outlook," said Sheard.
Lehman Brothers estimated a 40 percent probability of a US recession. Sheard conceded that the risks are growing that the world's biggest economy is in for a downturn, but it should be averted by aggressive moves from the Federal Reserve.
The Fed is widely expected to slash interest rates by as much as 50 basis points next week.
"But maybe they will react to this stock market meltdown and do something a little bit more aggressive to calm the nerves in the market," said Sheard.
Lehman Brothers is expecting the Fed to cut rates by 150 basis points by August to head off a US recession.
The Fed has already cut rates three times since September, slashing a full percentage point from its federal funds rate, which now stands at 4.25 percent.
A recession in the US may pull down Asian growth by as much as 4.5 percent, excluding Japan, said Lehman economist Robert Subbaraman, citing the region's heavy reliance on US exports.
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