Global Economic Growth Forecasts Slashed by Morgan Stanley

Morgan Stanley lowered its global growth forecasts for this year and next, citing a backdrop of deteriorating corporate sentiment, weak incoming data and lingering uncertainty over trade tensions among contributing factors.

The firm revised down its growth estimates by 20 basis points for both 2019 and 2020 to 3% and 3.2%, respectively. Morgan Stanley said in a note Sunday that it expects global growth to slow to a trough of 2.9% — a six-year low — by year-end from 3.2% in the first quarter of 2019.

Notwithstanding further policy easing, the firm said that it sees global growth remaining sub-par into 2020 on its new projections. Given differences in economic cycles, however, it said that growth in emerging-market economies outside of China should hold up better compared with the US and the rest of the developed markets.

As uncertainty around trade policy is unresolved, the impact on the growth outlook is becoming more pronounced, the firm said. Business confidence and capital expenditure slowed to multi-year lows. Since mid-2018, capital goods imports — which Morgan Stanley described as a proxy for capital expenditure — have already “collapsed.”

It added that global purchasing managers’ indexes, which have been falling since the middle of 2018, declined further “in a broad-based fashion” in May.

For the US, the firm’s business conditions index recorded its largest one-month decline ever, slumping to a level not seen since June 2008.

With the easing cycle now in full swing, the firm said that it expects the Federal Reserve to cut its benchmark lending rate by 50 basis points in July and for the European Central Bank to cut rates possibly as early as July and likely announce a restart of the quantitative easing program.

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