THE DEADLY virus sweeping the Far East could tip the world economy into recession, Wall Street experts forecast yesterday.

Morgan Stanley became the first leading bank to predict that severe acute respiratory syndrome (Sars) could trigger a global downturn, and lowered its world growth forecasts because of the rapid spread of the condition.

Other investment banks also gave warning that, with the world economy already weak because of war with Iraq, Sars could have repercussions across the globe.

An unexpectedly large fall in US employment underlined the fragility of the world economy, and analysts said that even a relatively minor global shock could be enough to trigger a “double dip” in growth.

Stephen Roach, Morgan Stanley chief economist, said: “Sars may well be the tipping point for a global economy that has already been hit by the twin shocks of war and geopolitical uncertainty. Unfortunately, the Sars effect is concentrated in Asia — long the fastest growing economy in the world and the one area that had basically been keeping the world economy afloat.”

Morgan Stanley said it was reducing its forecast for global gross domestic product (GDP) this year to 2.4 per cent, from 2.5 per cent previously. Because there is little chance of every region of the world economy contracting simultaneously, analysts typically regard any global growth figure of below 2.5 per cent as representing recession.

Mr Roach said: “We and others have long viewed 2.5 per cent as the official recession threshold for the global economy. Prior to this latest cut, our baseline estimates depicted a world right on the cusp of renewed recession. This reduction now takes the world as a whole into the recession zone.”

Further cuts in the Morgan Stanley global growth forecast were likely in coming months, Mr Roach said.

“In terms of world GDP growth, I continue to place those risks in the 2 per cent to 2.5 per cent range. Our most recent reduction leaves us at the upper end of that.” Other investment banks agreed that the spread of the disease could wreak havoc on the economies of the Far East.

Citigroup said that, even if the spread of the virus was quickly contained, it could still cost China 0.3 per cent of its national income. This is approximately the same as the impact on the country’s economy as the war with Iraq.

Goldman Sachs said that Sars could cut growth in Hong Kong this year to 1.7 per cent from an initial estimate of 3 per cent. The virus could knock 0.5 per cent from quarterly growth in Singapore, 0.3 per cent from quarterly growth in Taiwan and 0.2 per cent from growth in Thailand, according to the bank.

Bill Dudley, of Goldman Sachs, said: “These figures do not assume an epidemic. Instead, the assumption is that the spread of Sars is contained and the threat gradually dissipates over time.”

Market fears about the economic impact of Sars coincided with new statistics from the US showing that the jobs market was weaker than analysts thought. American non-farm employment during March dropped a larger than expected 108,000. The February fall in employment was revised up to 357,000.

Despite the disappointing labour market statistics, John Snow, US Treasury Secretary, said he believed there would not be a double dip in American growth. “I don’t think that we’re headed to a double dip. I think the economy has slowed somewhat and isn’t performing where we’d want it to perform.”