Key Highlights

  • Morgan Stanley economists say global economy in new expansion cycle and output will return to pre-COVID crisis levels by Q4 2020
  • Morgan Stanley economists expect global GDP growth to trough at -8.6% y/y in Q2 and recover by Q1 2021

Morgan Stanley’s economists led by Chetan Ahya wrote in a mid-year outlook research note that “We have greater confidence in our call for a V-shaped recovery, given recent upside surprises in growth data and policy action,” in mid-late June. This statement comes despite the World Bank forecasting a synchronized downturn of +90% of economies to experience a recession this year.

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According to Morgan Stanley, the global economy is in a “new expansion cycle and output ought to return to pre-COVID levels by Q4 2020. Such a “sharp but short” recession whereby the global GDP growth will trough at -8.6% y/y in Q2 2020 and go back to 3.0% by Q1 2021 is predicated upon these three reasons:

  • This economic shock was triggered by the COVID pandemic, not imbalances in the economy
  • The deleveraging pressures will likely become more modest
  • The sizable, ongoing governmental policy support given globally will likely boost the recovery globally

The two uncertainties that could upend such an optimistic outlook is the coronavirus itself not listening and simply playing itself out for as long as it takes and a not having an effective vaccine broadly available by summer 2021.

Morgan Stanley’s economists assume “that a second wave of infections will occur by autumn, but that it will be manageable and result in selective lockdowns” but that if the opposite happens, “…in our bear case that we re-enter into the strict lockdown measures implemented earlier this year, resulting in a double-dip…” or W-shaped recovery.

Other prognosticators are more cautious than Morgan Stanley. The International Monetary Fund, for one, has warned that the global economy is taking longer to recover than anticipated and that “profound uncertainty” remains.

Just look at what’s happening in China where Beijing is experiencing a recent jump in COVID. Many in China, including its vice premier, according to a Xinhua report, are saying that risks are “high” for a resurgence in the pandemic and for a possible spread of the pandemic already taking place.

Economists at JPMorgan Chase are concerned about heaving debt and deficits globally that may cause governments to roll back their fiscal stimulus programs. Bruce Kasman of JPMorgan Chase said such debt and deficits are the underpinnings of the company’s “…forecast for an incomplete recovery through 2021.”

Such discussions take us back to the recovery images we posted here a couple of weeks ago…V-shaped, W-shaped or ?-shaped.

 

Thanks to BloombergNews.

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