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Morgan Stanley rules out economic depression

28 Mar '20
2 min read
Pic: Shutterstock
Pic: Shutterstock

With the COVID-19 outbreak badly damaging the global economy, Morgan Stanley expects economic growth to dip close to the levels during the 2008 global financial crises (GFC) and US growth to a 74-year low in 2020. Assuming new confirmed cases peak in April-May, growth should start recovering from the third quarter with an aggressive monetary and fiscal policy response, it said.

The key risk, however, is that the disruption continues beyond the second quarter. If the peak comes later and virus-related economic disruption continues into the third quarter, the research house expects global and US growth to contract, according to global news wires.

Unlike in 1929-33, the response to the current economic shock has been extremely aggressive. With the experience of the 2008 crisis still fresh in policymakers’ minds, policy actions over the last few days have been vigorous, especially in the G4 and China, Morgan Stanley said. It expects an aggressive monetary response in the pipeline.

Since mid-January, 22 of the 30 central banks it covers have eased monetary policy. By the end of 2020, it expects 25 central banks to be easing, implying better monetary support than witnessed in the aftermath of the GFC.

While the initial response from developed economies was slow, over the last few days—with economic and financial market disruptions persisting—Morgan Stanley has started seeing strong commitments from policymakers, indicating that a sizeable fiscal expansion plan is in the offing.

In the United States, the company expect the cyclically-adjusted primary fiscal deficit to rise to 9.9 per cent of gross domestic product (GDP) in 2020 (assuming a stimulus of $1.4 trillion) compared with 7.0 per cent of GDP in 2009, the Morgan Stanley report added.

Fibre2Fashion News Desk (DS)

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