Global Economy Not Facing Recession Threat Despite China's Slump: Goldman Sachs

Massive sell-off witnessed across the global stock markets on Monday have raised fears that the economy is headed for another recession in seven years, but a global brokerage said that the world economy is not at risk of recession despite a slump in Chinese markets.

"The global economy is not at a risk of a recession in spite of recent concerns over China's economy and weakness in commodity prices," Goldman Sachs said.

Chinese stock markets plunged over 5% for the second consecutive day on Tuesday, after falling by over 8.5% in the previous session.

Tracking the fall, the US stock markets ended nearly 4% down on Monday, posting their worst decline in four years. Asian, European markets also tumbled to multi-year lows, as worries grew over the world's second largest economy China.

Chinese economy has been the growth engine for the world economy for the past two decades and a vast demand for commodities like oil, copper and iron in the country has underpinned the growth in many other countries.

A recent data showed that China's manufacturing activity fell sharply to a six-year low in July, despite many stimulus measures taken by the country's authorities to prop up the growth.

As a result, China resorted to yuan devaluation two weeks back to boost its slumping exports. Owing to Chinese currency devaluation move, prices of many commodities including crude oil saw further sell-off.

"The drop in commodity prices during the past year and recent economic and foreign exchange weakness in China and other emerging markets will not tip the global economy into recession," analysts at Goldman Sachs said in a note to Reuters.

Crude oil prices have been halved since June last year, with China's slowdown being one of the reasons, apart from oversupply situation. Investors see the decline in oil prices as a signal of further slowdown in the global economy.

"We see a meaningful risk that markets are over-interpreting the collapse of oil and commodity prices as a negative growth signal," the analysts said.

Goldman Sachs said that lower oil prices are mainly "a reflection of excess supply rather than weak demand."