After cutting their growth projections for global growth (real GDP) to a six-year low of 2.9 per cent by 2019-end in July 2019, analysts at Morgan Stanley now see a marginal recovery and expect 2019 to end with a 3 per cent growth. They, however, see retained the projection for 2020 at 3.2 per cent and expect the growth to pick up pace next year. As a result, their projection for global growth for 2021e stands at 3.5 per cent.
With the global monetary easing cycle under way since the first quarter of 2019 (1Q19) and trade tensions now easing, Morgan Stanley believes global growth is likely to trough in the fourth quarter of 2019 (4Q19), followed by a recovery from the first quarter of 2020 (1Q20) onwards.
“Global growth should recover from 1Q20, reversing the downtrend of the past seven quarters as trade tensions and monetary policy are easing simultaneously for the first time since the downtrend began. The pace of monetary easing picked up from the third quarter of 2019 (3Q19) and 20 central banks have eased over the past 12 months. We expect more easing, with the global weighted average policy rate touching a seven-year low by March 2020,” wrote Chetan Ahya, their chief economist and global head of economics in a recent co-authored report.
Uncertainties relating to trade wars, macro data from the United States (US) and reduced scope of monetary policy, however, are the three key risks it cites to its projections.
Region-wise, Morgan Stanley expects growth in the emerging markets (EMs) to be higher than their developed market (DM) peers, as central banks continue cutting rates. It expects 13 central banks to ease further in 2020, bringing the global weighted average policy rates to a seven-year low by March 2020. These rate cuts, it says, will be concentrated in the EMs, with the central banks in India, Brazil and Russia cutting rates once more to take nominal policy rates in these countries to either a historical or post-global financial crisis (GFC) low.
As regards India, Morgan Stanley expects growth to average 5 per cent in 2019 and improve to 6.3 per cent in 2020 and 6.8 per cent in 2021. On a fiscal year basis, they peg the GDP growth at 6.5 per cent in F2021 and 6.9 per cent in F2022 (versus 5 per cent in F2020).
“We expect growth to improve in 2020 with the support of past policy measures and expectations of continued reform action from the government. Apart from a cyclical recovery, we expect a policy focus on improving trend growth through productivity-enhancing measures, which help to create a virtuous cycle of growth,” Ahya said in the co-authored report.
Analysts at CLSA, however, remain cautious on how the global economy will pan out in 2020. They see 2019 global growth at 2.2 per cent, down from 2.9 per cent in the previous year, and slip to a mere 1 per cent in 2020 before bouncing back to 2.2 per cent in 2021.
“Weakness elsewhere means that the global economy is reliant on the US to drive growth. World trade growth has fallen to the lowest level since the GFC with the US economy slowing from 3 per cent-plus growth in mid-2018 to 2 per cent today. We have cut our 2020 growth forecasts for those AxJ (Asia, ex-Japan) economies that are export driven. The world economy is facing clear headwinds and these will get worse,” says Eric Fishwick, chief economist at CLSA.
All figures in %; NA = Not Available; Source: Morgan Stanley, CLSA reports