Morgan Stanley revises down global growth forecast

Recently, Goldman Sachs too had echoed a similar view, revising its global growth forecasts downward to 3% - 3.5% for H2CY16

Though world markets have Brexit vote outcome in their stride, leading global research houses remain worried about economic growth going ahead, with analysts at Morgan Stanley, too, revising down their forecast for FY17. In their recent report - Global macro summer outlook: Clouded by Politics and Policy Uncertainty - Chetan Ahya, managing director, Morgan Stanley Asia expects growth to firm to 3.2% in 2017, but has moved further below the consensus estimate of 3.6%.

"The global economy has been oscillating between periods of alternating growth improvement in either developed markets or emerging markets. We expect this situation to continue, but emerging market growth is likely to accelerate for the first time in four years while developed market growth decelerates. We think that the risks to the outlook are driven by the three factors of productivity, politics and policy," Ahya writes.

Adding: "We remain materially below consensus in most of developed markets, particularly in 2017. Most notable are our US and Australia gross domestic product (GDP) forecasts of 1.5% and 1.9%, respectively, 0.8 percentage point (pp) and 0.9pp below the consensus forecasts of 2.3% and 2.8% respectively. In emerging markets, we expect growth to improve from 4% in 2016 to 4.7% in 2017 as the drag from commodity exporters reduces over time."

Recently, Goldman Sachs had echoed a similar view, revising its global growth forecasts downward. It pegged the global economic growth in the remaining half of calendar year 2016 (H2CY16) at 3% - 3.5%, with more downside risks due to Brexit. The other significant risk to global growth it highlighted was from China - where it believes growth could decelerate going ahead.

Though Goldman Sachs expects a gradual deceleration in Chinese growth rates, it expects some stabilisation return to growth rates in commodity-dependant economies going ahead. As regards India, it had pegged the GDP (gross domestic product) growth at 7.9% in the current financial year and at 8.1% in FY18 in an earlier report in June.

Morgan Stanley, on the other hand, has revised up its growth estimates for India in 2016 to 7.7% from 7.5% and in 2017 to 7.8% from 7.7%. The upward revision, it says, is due to stronger-than-expected quarter ended March-16 GDP numbers and positive incoming macro data, indicating a broadening out of the growth recovery.

"We think that the UK's vote to leave the EU is likely have an adverse impact on India's growth through trade and financial channels. However, we expect the impact to be less on India versus other, more open economies in the region, due to lower exposure in terms of exports to the UK. Better macro-stability conditions should limit the potential impact through financial channels," the report says.

Drivers of inflation - commodity prices, wage costs, fiscal consolidation, property prices - remaining benign, Morgan Stanley expects the Reserve Bank of India (RBI) to cut policy rates by another 50 basis points (bps) by quarter ending Mar-17 and taking cumulative rate cuts since January 2015 to 200 bps. Going ahead, it sees inflation falling to 4.5% by quarter ending March-17.