HONG KONG: A combination of easing trade tensions and easier monetary policy will lift global growth from the first quarter of 2020, according to economists at Morgan Stanley.
Emerging markets will drive the recovery, given the late-cycle stage that US growth is in, they argue.
“A Q120 recovery is on the cards,” the US bank’s economists led by Chetan Ahya wrote in a note.
“Global growth should recover from Q120, reversing the downtrend of the past seven quarters as trade tensions and monetary policy are easing simultaneously for the first time since the downtrend began.”
Risks remain skewed to the downside, including the potential for more tariffs and late-cycle challenges in the US, including corporate credit risk and uncertainty around the elections.
If the Trump administration follows through on its threat to impose additional tariffs on Chinese goods in December, global growth will decelerate further in the final quarter of this year “and the recovery will be delayed until Q320,” the authors write.
Still, a mini-cycle recovery should kick in next year. Constant interruptions to the global cycle over the past decade have kept a lid on any overheating and helped avert a steep recession, according to Morgan Stanley’s economists.
“Hence, with this mini-cycle recovery – the third in the last decade – we believe that the late-cycle expansion can be extended,” they wrote.