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Last Updated: Wednesday, 9 January 2008, 14:50 GMT
Goldman Sachs sees US recession
Wall Street traders
Goldman Sachs advised investors to sell financial shares
The investment bank Goldman Sachs has predicted that the US economy will go into recession in 2008.

Its forecast follows comments from Merrill Lynch, which said that the US economy is already in recession.

Goldman Sachs said that the slowdown would force the US Federal Reserve to reduce interest rates to 2.5% from the current level of 4.25%.

But a survey of 62 economists by the Bloomberg news agency suggested the slowdown might not lead to a recession.

Taking the mid-point of the economists' predictions for US growth in the first six months of 2008 gave an average figure of 1.5%.

Prepare yourselves

"It's soft economic activity that feels like a recession, but we probably won't have one," Bloomberg quoted Mickey Levy at Bank of America as saying.

In a note to client entitled "Prepare for recession", Goldman Sachs cut its forecast for US growth this year to 0.8% from 1.8% and said that gross domestic product would decline in the second and third quarters of the year.

It predicts that US unemployment will rise from the current 5% to 6.5%.

Last Friday's labour market figures, which showed the jobless rate rising to 5%, set stock markets falling around the world and were described by Merrill Lynch as the final proof that the recession had started.

It recommended that investors should reduce holdings in the financial sector and information technology and opt instead for healthcare stocks.

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