Emerging markets will drive the recovery, given the late-cycle stage that U.S. growth is in, they argue.
“A 1Q20 recovery is on the cards,” the U.S. bank’s economists led by Chetan Ahya wrote in a note. “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.”
Risks remain skewed to the downside, including the potential for more tariffs and late-cycle challenges in the U.S., including corporate credit risk and uncertainty around the elections.
If the Trump administration follows through on its threat to impose additional tariffs on Chinese goods in December, global growth will decelerate further in the final quarter of this year “and the recovery will be delayed until 3Q20,” the authors write.
Still, a mini-cycle recovery should kick in next year. Constant interruptions to the global cycle over the past decade have kept a lid on any overheating and helped avert a steep recession, according to Morgan Stanley’s economists.
“Hence, with this mini-cycle recovery — the third in the last decade – we believe that the late-cycle expansion can be extended,“ they wrote.