The latest version of Morgan Stanley’s “Global Monetary Analyst” focuses not surprisingly on Japan.
The firm forecasts a short, deep recession in Japan, and a more modest impact on the global economy, thanks to the fact that Japan is such a closed economy.
The fast summary:
The tragic events in Japan could push the Japanese However, the spillover effects to the rest of the world. Given the close trade and capital flow linkages, Asia-With initial conditions for the global economy relatively economy into a short and deep recession, with GDP shrinking by 1-3% this year, according to very rough and preliminary estimates by our Japan team.
However the spillover effects should be relatively limited. We guesstimate that the
event could shave about half a percentage point off our pre-quake global real GDP growth estimate of
4.3%. About half of the shortfall (around 0.25pp) would come from the direct effect of a drop in
Japanese GDP; the other half would reflect negative spillovers to the rest of the world.
Pacific economies should be affected more than the Americas and Europe.
Yet our Asian colleagues think their core thesis for regional growth and inflation is unchanged. The biggest uncertainty is the impact of Japanese output, transport and export disruptions on the global supply chain. Financial market contagion could also magnify the impact on other economies.
With initial conditions for the global economy relatively favourable going into the shock, and policy-makers likely to provide more support if needed, the overall impact on world growth should be modest
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