Economists at UBS say that they are now forecasting a global recession, with the United States expected to see at least four quarters of declining economic output, an inevitable recession in Europe, and a marked growth slowdown in Asia.

“The distinct escalation of the global financial and credit market crisis since September has caused UBS economists to again revise their already cautious economic forecasts downwards,” it reports.

“The U.S. fought to stave off a recession by instating aggressive interest rate cuts and a substantial fiscal package at the beginning of this year. Nonetheless, recession can no longer be avoided after the sustained losses on the equity and real estate markets and the credit crunch that is becoming increasingly entrenched,” it concludes.

As a result, UBS expects U.S. economic output to contract for at least four quarters from the middle of this year. “As budget imbalances in U.S. households that have been living beyond their means for years have to be corrected by a sustained adjustment period, the recovery beginning in the middle of next year is likely to be very weak and the U.S. economy will probably grow significantly slower in the foreseeable future than the 3% trend growth generally assumed,” it adds.

UBS economists also anticipate more interest rate cuts by the U.S. Fed as well as additional fiscal stimulus programs in response.

In Europe, the downturn is likely to be particularly dramatic in those countries in which, similar to the US, the previously heavily overvalued real estate markets are now collapsing (Britain, Spain), or which are battling structural problems (Italy), it says.

Countries such as Germany and Switzerland should hold up somewhat better, since they have avoided excesses in the real estate market and in private consumption, UBS believes. “However, even Switzerland, with its heavy dependence on exports and the significance of its financial sector, will probably not be able to avoid a period of economic stagnation,” it admits.

Overall, UBS economists expect Europe’s economy to enter into a recession almost in synch with the US. In light of this, the central banks in Europe are also expected to further cut interest rates.

Even in Asia, exports, and therefore economic growth — particularly in smaller, open economies — have decreased noticeably, the firm notes. According to UBS estimates, the Japanese economy is expected to stagnate at best in the coming year. Large countries such as China, India or Indonesia should fare better, as they have a smaller export ratio than the smaller Asian economies. Overall, UBS economists expect global economic growth to slow from about 5% in 2007 and 3.7% in the current year to 2.4% in 2009.