Wall Street bank Morgan Stanley revised its growth forecast downward on Thursday and warned the U.S. and Europe were ‘dangerously close' to a recession because of policy errors.

The investment services firm revised its global GDP growth forecasts to 3.9 per cent in 2011 and 3.8 per cent in 2012, from 4.2 per cent and 4.5 per cent, respectively, in an emailed statement.

It also forecast a slowdown in emerging markets like China, India, Russia and Brazil, with overall growth slowing to 6.4 per cent this year and further to 6.1 per cent in 2012 from 7.8 per cent in 2010. It said the main reasons for the global slowdown were “recent policy errors in the U.S. and Europe plus the prospect of further fiscal tightening there in 2012”. It referred specifically to what it called the “slow and inefficient response'' to the Eurozone debt crisis and the drama surrounding the debt-ceiling deal reached by U.S. lawmakers this month, which resulted in S&P's downgrading the U.S. credit rating for the first time ever.

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