Global economy heading for recession?

This Forbes InvesTech Research says today’s economy is on a collision course with a recession. And the most probable starting point is the fourth quarter of this year or early 2007. Since the stock market typically leads the economy by six to nine months, you can guess what that means for Wall Street this year.

The report also says, " we've been watching these pressures unfold for over a year now, with a tightening labor market, rising commodity prices, diverging consumer confidence, and the growing imbalances leaving little room for the Federal Reserve to maneuver. The recently-released FOMC minutes for May confirm both our insights and instincts."

For those seeking advice on how to diversify and build up a portfolio of stocks in a recessionary period, this may be a good time to follow the market trends.

Looking back into history, we know that there are cyclical patterns of ups and downs in the global economy. Recessionary periods are followed by periods of growth and prosperity.

Why do recessions come?

A recession is usually defined in macroeconomics as a fall of a country's real Gross Domestic Product (GDP) in two or more successive quarters of a year.

A recession may also involve falling prices, called deflation; alternatively it may involve sharply rising prices (inflation), in which case this process is known as stagflation. A severe or long recession is referred to as an economic depression or slump. A recession can also be defined as two consecutive periods of negative growth.

In a developed capitalist / free market economy, recessions come and go at fairly regular intervals - often 5-10 years - in what is known as the business cycle.

Prolonged high oil prices in the world market or even a bird flu pandemic in one part of the world could cut economic growth drastically in many countries and such an impact could trigger a global recession.