They've placed the likelihood of the world economy falling back into recession at 30 per cent in 2016, blaming low oil prices and decreasing effects of central banks' extraordinary monetary stimulus measures to support economies.
Experts at the US investment bank had previously put the chances of recession in the global economy at 20 per cent but warn the outlook has worsened due to the "starting conditions for 2016 deteriorating somewhat since the last forecast update".
They do however credit solid consumer spending, subdued oil prices and expansionary monetary policy as working against a possibility of a recession materialising.
Analysts at the bank wrote:
With the global economy still stuck in a low-growth environment, it remains vulnerable to shocks, including: i) Central banks losing control of domestic financial conditions (Fed, ECB and BoJ) or international capital flows (EM, notably China); and ii) A broad range of political and geopolitical risks, notably the Middle East conflict, the European refugee crisis and a number of local situations (e.g., Brexit, Brazil).
Morgan Stanley has lowered its expectations for global gross domestic product (GDP) to three per cent this year, down from an earlier estimate of 3.3 per cent.
The Japanese economy outlook has had the most severe haircut, down to 0.6 per cent from 1.2 per cent.
For the G10 group of countries GDP is forecast to to 1.5 per cent from 1.9 per cent.
In the UK GDP growth from has been revised down to 1.7 per cent, from two per cent before. There will be more signs of activity slowing as business becomes more cautious in committing to new projects and contracts ahead of the referendum, though they do expect the UK to remain in the European Union.
We expect a 2016 slowdown as the impact of tighter fiscal policy and Brexit-related uncertainty bite. In the run-up to the June EU referendum, we expect to see more signs of activity slowing as business becomes more cautious in committing to new projects and contracts.
Analysts at the bank have also slashed their forecasts for the world's big equity markets and are advising clients to sell all stocks that have recently rallied.
The bank lowered its 12-month target for the US S&P 500 index to 2,050 from 2,175, a rise of just 1.4 per cent from its close on Friday.
The index rallied 8.4 per cent over the past month, pushed on by a bounce in the oil price and better than expected US economic data.