The terrorist attacks on New York and Washington will cut economic growth sharply across the world, according to a wide range of new and revised forecasts published over the weekend.

The majority of economists now expect the US economy to be in recession in the third and fourth quarters of this year.

But there is disagreement whether a recovery next year will be short and sharp, or whether powerful contractionary forces will lead to a prolonged period of weak US economic activity.

Economists agree that the attack on the World Trade Center could not have come at a much worse time for the world economy.

The Economist Intelligence Unit forecasts global growth this year of 2.4 per cent, the slowest since 1992 and the fastest deceleration of growth for 30 years. Last month a leaked version of the International Monetary Fund's World Economic Outlook expected 2.8 per cent growth this year.

Deutsche Bank is even more pessimistic. It expects world growth to slow to 2.2 per cent this year with the Group of Seven leading industrial economies performing even worse. This year and next, it expects 1 per cent growth in the seven leading industrial countries, "giving the weakest two year performance since the early 1980s global recession".

The most severe effects are likely to be felt in the US. Although the Economist Intelligent Unit still expects a recession will just be avoided, it is almost alone in that belief. Merrill Lynch, Goldman Sachs, Schroder, HSBC and Deutsche Bank all expect a recession in the US at the end of this year. HSBC has the most pessimistic short-term forecast. It expects the fourth quarter annualised growth to be minus 3 per cent.

In response to this sharp contraction, the Federal Reserve is expected to continue its series of interest rate reductions. The consensus is for the Fed Funds rate to fall another percentage point to 2 per cent.

Economists also believe the US government will continue to boost public spending. Goldman Sachs economists expect additional public spending of $140bn. That amount would "bring the total amount of planned stimulus over the next year to nearly 1.5 per cent of gross domestic product".

If economists tend to agree on the likelihood of recession, there is a wide range of views on how quickly the US will recover.

The HSBC economics team thinks that "the US recession is going to be more 'V' shaped than before" because aggressive policy action will encourage a rebound in growth next year. But they warn that "recoveries inspired by loose fiscal policy can have unforseen unpleasant consequences, either in the form of rising real interest rates or higher inflation".

Goldman Sachs economists take the view that falling equity prices will depress consumer spending considerably and that increased uncertainty will lead to higher savings rates among households and lower investment from the corporate sector. They "doubt that the economy will recover quickly".

A US recession is expected to depress European growth. European forecasts have been cut by up to 1 percentage point next year, but few economists expect a recession either in the eurozone or in the UK.