Morgan Stanley’s economics team led by Joachim Fels just raised its estimate for 2012 global GDP growth to 3.7 per cent from 3.5 per cent.The primary reason for this was a huge upward revision in their China GDP estimate.
From their note to clients:
In China, where our previous above-consensus forecast of 8.4% 2012 GDP growth had become (published) consensus in recent months, we raise our forecast to 9.0%, one of the highest in the Street. As Helen Qiao and her China team explain in more detail in a companion note, this is essentially a call on additional macro stimulus being implemented in the very near term in response to somewhat disappointing results during the first few months of the year. In addition to further RRR cuts, OMO and window guidance intensification, we expect the government to support loan demand by lowering the benchmark interest rate by 25bp at least once, resuming infrastructure investment projects, as well as promoting first-time home purchase and developers’ ‘regular commodity housing’ construction to smooth the cycle.
Fels says that Morgan Stanley also upped its growth estimate for Japan.
In Japan, the upward revision from 1.1% to 1.8% largely reflects a better-than- expected ramp into the year and stronger capex assumptions.
But things aren’t completely rosy. Fels warns that risks are heavily skewed to the down side.
Risks remain skewed to the downside… with old (potential political gridlock leading to fiscal tightening next year in the US, or a euro crisis) and new (oil price) hazards each being serious enough to potentially derail the recovery: the distance between our bear case and our base case for global growth is 1pp, twice the distance between base and bull.