Morgan Stanley says the global economy is bottoming out, signalling a 'sharper but shorter' downturn than the great financial crisis

Getty Images/Jessica McGowanServer Ayite Medji (right) waits on Gene and Julia Schatlock on the first day back to dine-in service at Roasters on April 27, 2020 in Atlanta, Georgia.
  • Morgan Stanley sees signs that the global economy is in the process of bottoming out, according to a Sunday note by economist Chetan Ahya.
  • The bank forecast that global growth will bottom out at -7.5% in the second quarter of the year, but sees global and developed-market output reaching pre-recession levels in four and eight quarters, respectively. That’s faster than the six and 14 quarters they took to recover from the great financial crisis.
  • “The trigger for this recession is an exogenous shock in the form of a public health crisis, rather than the classic, endogenous adjustment triggered by rising imbalances,” Ahya wrote. “This also did not start out as a financial crisis, and the banking system is in better shape today than prior to the [great financial crisis].”
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Even though the coronavirus pandemic has wreaked havoc on the global economy, Morgan Stanley sees signs that the recovery is on its way, and that it will be faster than the great financial crisis.

The bank forecast that global growth will bottom out at -7.5% in the second quarter of the year. However, Morgan Stanley sees global and developed-market output reaching pre-recession levels in four and eight quarters, respectively – faster than the six and 14 quarters they took to recover from the great financial crisis.

“The trigger for this recession is an exogenous shock in the form of a public health crisis, rather than the classic, endogenous adjustment triggered by rising imbalances,” wrote economist Chetan Ahya in a Sunday note. “This also did not start out as a financial crisis, and the banking system is in better shape today than prior to the [great financial crisis].”

A number of economic indicators Morgan Stanley tracks show signs of bottoming, according to the note.

“Consumers’ future expectations have improved, mobility trends have moved up from their troughs and consumer spending is contracting more slowly than in the early weeks of the outbreak,” Ahya wrote.


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The bank said it thinks that China’s economy bottomed in February, with the euro area following in April. The US likely reached its nadir from late April, according to the bank. Central and Eastern Europe, the Middle East, Africa, and Latin America will reach the bottom later in the year, Morgan Stanley said.

In addition, the slow reopening of economies around the world will likely further improve mobility and production trends.

“In the US, some states have begun to reopen, and our US economics and biotechnology teams estimate that, by mid-May, 54% of the economy will be in a meaningful reopening phase,” Ahya wrote.

Morgan Stanley has been closely observing the opening in China to gauge how the rest of the world may follow. The bank’s views are shaped by the path but not the duration and magnitude of the recovery, according to the note.

In addition, Morgan Stanley said that the reopenings have prompted questions about a potential second wave of COVID-19.

“We readily admit that many unknowns concerning the virus remain, but we do expect additional waves of infections to occur,” Ahya wrote.

He continued: “… we take comfort that the phased reopening, the scaling up of public health authorities’ ability to test and trace on a meaningful level, the development of medical solutions to treat and prevent the disease and the awareness of the population at large mean we have a much better chance to reduce the size and scope of future outbreaks.”

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