MORGAN STANLEY: This Is What The Euro Economy Will Do In 2012 And 2013

euro

Morgan Stanley’s Global Economics Team led by Joachim Fels recently released their updated global economic outlook for 2012 and 2013.

“[W]e cut our 2012 global GDP forecast further from 3.8% to 3.5%, taking growth below its long-term average,” said the analysts. “Our biggest downward revisions are in the euro area, where we think the economy has now entered recession.”

Included in their report is a detailed forecast for the euro area economy.  Regarding their base case scenario:

Our base case assumes that European governments make a big step towards fiscal integration soon that stabilizes confidence, and that US Congress extends most of this year’s stimulus. Against the backdrop of recent policy mistakes, these assumptions may seem heroic. Failure on these fronts would risk a full-blown recession in the US and Europe, with global GDP growth falling below the 2.5% recession threshold. And if the euro were to break up (still a tail event, in our view, but a fatter one) the Great Recession of 2008/09 would pale in comparison to what would unfold, in our view.

The full report provides a detailed break-down of base, bear, and bull case scenarios for the Euro area economy.

[slideshow]
[slide
permalink=”the-euro-area-economy-is-expected-to-contract-in-2012-only-to-be-followed-by-anemic-growth-for-years-to-come-1″
title=”The Euro area economy is expected to contract in 2012, only to be followed by anemic growth for years to come”
content=”GDP Growth

  • 2011: 1.6%
  • 2012: -0.2%
  • 2013: 0.9%
  • 2014 – 2018: 1.4%

Source: Morgan Stanley
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[slide
permalink=”personal-consumption-will-slow-with-the-economy-2″
title=”Personal consumption will slow with the economy”
content=”Private Consumption Growth

  • 2011: 0.7%
  • 2012: 0.2%
  • 2013: 0.5%

Source: Morgan Stanley
image=”http://static.businessinsider.com/image/b57a6c790b99f748fe7c6700″
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]
[slide
permalink=”capital-expenditures-will-dip-3″
title=”Capital expenditures will dip”
content=”Gross Fixed Investment Growth

  • 2011: 2.1%
  • 2012: -1.5%
  • 2013: 0.5%

Source: Morgan Stanley
image=”http://static.businessinsider.com/image/4ec13c7cecad04bf0e000034″
caption=””
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]
[slide
permalink=”government-spending-will-pull-back-thanks-to-austerity-measures-4″
title=”Government spending will pull back thanks to austerity measures”
content=”Government Consumption Growth

  • 2011: 0.5%
  • 2012: -0.2%
  • 2013: -0.2%

Source: Morgan Stanley
image=”http://static.businessinsider.com/image/4e7b60d169bedd744100003e”
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]
[slide
permalink=”prices-are-expected-to-decline-making-room-for-monetary-easing-5″
title=”Prices are expected to decline, making room for monetary easing”
content=”Inflation

  • 2011: 2.7%
  • 2012: 1.5%
  • 2013: 1.3%

Core-Inflation

  • 2011: 1.4%
  • 2012: 1.1%
  • 2013: 1.2%

Source: Morgan Stanley
image=”http://static.businessinsider.com/image/4ecbc2ceeab8eaa720000020″
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]
[slide
permalink=”however-income-wont-keep-up-with-inflation-6″
title=”However, income won’t keep up with inflation”
content=”Real Disposable Income Growth

  • 2011: 0.2%
  • 2012: -0.1%
  • 2013: 0.5%

Source: Morgan Stanley
image=”http://static.businessinsider.com/image/4e7a00e6eab8eac61b000038″
caption=””
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]
[slide
permalink=”the-savings-rate-will-inch-lower-7″
title=”The savings rate will inch lower”
content=”Personal Saving Rate

  • 2011: 12.4%
  • 2012: 12.2%
  • 2013: 12.1%

Source: Morgan Stanley
image=”http://static.businessinsider.com/image/4e9b8b63ecad04f47300002c”
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[slide
permalink=”meanwhile-the-unemployment-rate-will-continue-to-climb-8″
title=”Meanwhile, the unemployment rate will continue to climb”
content=”Unemployment Rate

  • 2011: 10.1%
  • 2012: 11.0%
  • 2013: 11.2%

Source: Morgan Stanley
image=”http://static.businessinsider.com/image/4eb95ad669bedd2a6a000010″
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]
[slide
permalink=”government-debt-will-outpace-gdp-9″
title=”Government debt will outpace GDP”
content=”General Gov’t Debt (% of GDP)

  • 2011: 88.2%
  • 2012: 91.0%
  • 2013: 92.2%

Source: Morgan Stanley
image=”http://static.businessinsider.com/image/4ea59bc769bedd0c3d000043″
caption=””
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]
[slide
permalink=”the-ecb-is-expected-to-cut-rates-soon-while-german-yields-are-projected-to-rise-10″
title=”The ECB is expected to cut rates soon, while German yields are projected to rise”
content=”ECB Policy Rate

  • 2011: 1.00%
  • 2012: 0.50%
  • 2013: 1.25%

10-Year German Bund Yield

  • 2011: 1.75%
  • 2012: 2.20%
  • 2013: 3.00%

Source: Morgan Stanley
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]
[slide
permalink=”if-you-have-any-interest-in-the-us-economy-11″
title=”If you have any interest in the US economy…”
content=”MORGAN STANLEY: This Is What The US Economy Will Be Like In 2012 And 2013 >
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[/slideshow]