Why Morgan Stanley Still Believes 3.5% GDP Growth Is On The Way

Following last Friday’s GDP report, Morgan Stanley economist David Greenlaw slashed his 2H economic outlook from 4% to 3.5%.

But argualy the big eye-raiser there is the 3.5% growth, which is an acceleration from current rates.

So what’s that all about?

Greenlaw cites 4 factors:

  • Autos: A jump in auto production after the big-time disruptions earlier this year will add 1% to GDP.
  • Fuel prices: Due to the drop in gasoline prices, real consumption growth will be 3% in the second half compared to 1.5% in the first half.
  • A business expensing provision: A provision to incentivise business spending expires at the end of the year, and so businesses will therefore accelerate their investments as the year comes to an end.
  • Exports: For the past 5 years, there’s been a seasonal quirk that means Q4 sees a bigger boost to exports than other years. See the blow chart:
chart

Photo: Morgan Stanley

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