Australian investors need to be wary as the spectre of a full-blown United States recession looms, AMP's chief economist Shane Oliver has warned.

Oliver said with Australia still not immune to a US downturn, investors need to be cautious in the new investing environment.

"Given the uncertainty hanging over the US economy the risk of further sharp declines in shares is clearly high," he said.

"For Australian shares a retest of the August low of just below 5500 is possible if the US share market continues to decline."

In the US the Dow Jones and S&P 500 indices have retreated around 11 per cent since their record closing highs in November.

In a note to investors, Goldman Sachs JBWere (GSJBW) said recent data from the US indicated there was a two in three chance that the US economy will fall into recession.

GSJBW said the historical correlation between US and Australian economic growth remained at 60 per cent.

"We expect a US recession will be transmitted to Australia via falling business and consumer confidence, diminishing wealth effects, higher household savings, tighter financial conditions and weaker profit growth," GSJBW economists said.

However, according to the Institute of International Finance (IIF), the case for a full-blown US recession is still mixed.

"We believe the US economy has just entered a phase of significantly below trend growth in the first and second quarters of 2008," the IIF said in its Global Economic and Capital Markets Forecasts 2008.

"During this phase, quarterly growth is projected to average less than one per cent. The phase will not be long-lived and growth is forecast to revive to 3.5 per cent in the second half of 2008."