NEW YORK: Goldman Sachs, high priest and advocate of capitalism, red in tooth and claw, has switched - seemingly overnight - from bull to bear mode in its latest assessment of the global economy. Even the title of the investment bank's latest report is stark and unambiguous.

The Global Economy Hits a Crunch minces few words, warning that Europe and Asia are unlikely to pick up the growth baton as (not 'if') America falters.

And the report's author, Goldman's chief economist Jim O'Neill, spells out the great unthinkable - that the financial mayhem is about to metastasize from the debt markets to the production line.

"Much has changed since mid-July," says the report, "when we wrote that 'the global economy continues to enjoy one of the strongest sustained expansions in modern history'."

But now: "The mood in financial markets is clearly darker, and the economic data in the developed world is showing signs of wear. Japan's recovery is tottering, with the chance of an outright recession having risen to nearly two in three."

Nor, warns the report, should optimists look to the European Union, lately enfeebled by a raft of dire confidence surveys in Germany, Italy, France, and The Netherlands.

"In such circumstances," opines the bank, "any further rate rises by the European Central Bank are off the table." [Although some media observers wonder if this is merely a coded message to the ECB not to rain on Goldman's parade?]

The volte-face is all the more sombre given that Goldman has long been the Pangloss of the global economy, arguing that despite subprime woes, Asia and the developing world are strong enough to shrug off a US deceleration and enable global growth to race ahead unimpeded.

But the report points out that the ongoing fragility of Japan is often overlooked.

Although it remains the planet's second largest economy and its top creditor with around $3,000bn in net foreign assets, in this year's second quarter Japan's output had already contracted an annual rate of 1.2% - even before the credit crisis hit.

And wages have fallen for the last eight months in succession, down year-on-year by 1.9% and threatening to drag Japan back into deflation.

The one bright spot, Goldman believes, is the so-called BRIC quartet of nations: Brazil, Russia, India, and China. "All still firing on four cylinders, if slowing slightly."

Data sourced from; additional content by WARC staff