The Morgan Stanley global economics team is bearish on the global growth. Today the team cuts its outlook for the sixth time in seven months, and pretty sharply – to 0.9 per cent from 1.7 per cent. Global inflation meanwhile is seen coming down to 1.7 per cent from 3.8 per cent. The overall view:
…the 2010 recovery is likely to be moderate, despite unprecedented global policy stimulus. Our baseline view takes growth back up to 3.3% in 2010, with inflation at 3.7%. If that outlook is realized, global growth in 2009-10 would be the second weakest in the post-war period, barely stronger than in the deep 1982-83 downturn.Interestingly, the team notes its forecasts have been pretty variable of late. Their solution? Hedging for any potential scenario with a hugely varied worst case – best case scenario. Accordingly, the team sees the worst case scenario coming in as the most severe recession in the postwar period, the “good” scenario generating up to 2.3 per cent global growth in 2009.
Just look at the span of these fan charts:
Despite all that, the team acknowledges the downside odds firmly outweigh the upside odds – although depression is fairly unlikely:
Depression and deflation are important tail risks because, if left unchecked, the credit crunch could trigger severe consumer and business retrenchment. But they are highly unlikely for two reasons. For one, we see some economic excesses outside of real estate as more limited than in past periods, as a result of more limited global connectivity and supply-chain management. Most important, we believe that misguided policies deepened the Great Depression and Japan’s crisis, and we have learned three lessons from those events. First, aggressively use macro policies to buy time for other steps to take effect. Second, implement policies to stabilize the financial system and attack the root of the credit crunch. Finally, adopt measures to reduce the imbalances that triggered the downturn (see “Neither the Great Depression Nor Japan,”)