<p>The bank has cut its global gross domestic product growth forecast to 3.9 per cent from 4.2 per cent for the year 2011, and to 3.8 per cent from 4.5 per cent for 2012.<br /><br /> Morgan Stanley said in a research note that “our revised forecasts show the US and the euro area hovering dangerously close to a recession over the next 6-12 months.” <br />However, this will not be a repetition of a recession scenario as witnessed in the year 2008-09, Morgan Stanley said as the corporate sector looks healthy; household real incomes will be supported by lower headline inflation and there will be more action from central banks, including rate cuts and more non-standard easing from the Fed and the ECB.<br /><br />“A freefall of the economy similar to 2008 looks very unlikely, policy also has less potential for a shock-and-awe response, if needed. However, it is important to point out that a plausible recession scenario in 2011-12 would be much shallower than the 2008-09 experience,” Morgan Stanley said.<br /><br />Growth outlook<br /><br />Morgan Stanley further said that “the countries which are more externally oriented such as Korea, Singapore, Malaysia, Taiwan and Thailand will see a greater adjustment in their growth outlook compared with the economies with higher dependence on domestic demand, such as China, India and Indonesia.” Emerging market economies will not be immune to the developed market slowdown.<br /><br />Morgan Stanley expects emerging market growth to fall to 6.4 per cent this year from 6.6 per cent previously, and further to 6.1 per cent from 6.7 per cent in 2012.<br /><br />The report said the downgrade was mainly owing to three main reasons. First, the recent disappointing incoming data, especially in the US and the euro area, secondly, recent policy errors – especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling.<br /><br />“A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US. This should be aggravated by the prospect of fiscal tightening in the US and Europe,” the report said.<br /><br />Saying that the downside risk to growth are more worrying than the upside risks to inflation, Morgan Stanley said, “inflation will continue to be a challenge for longer than what the market was ready for.”</p>
<p>The bank has cut its global gross domestic product growth forecast to 3.9 per cent from 4.2 per cent for the year 2011, and to 3.8 per cent from 4.5 per cent for 2012.<br /><br /> Morgan Stanley said in a research note that “our revised forecasts show the US and the euro area hovering dangerously close to a recession over the next 6-12 months.” <br />However, this will not be a repetition of a recession scenario as witnessed in the year 2008-09, Morgan Stanley said as the corporate sector looks healthy; household real incomes will be supported by lower headline inflation and there will be more action from central banks, including rate cuts and more non-standard easing from the Fed and the ECB.<br /><br />“A freefall of the economy similar to 2008 looks very unlikely, policy also has less potential for a shock-and-awe response, if needed. However, it is important to point out that a plausible recession scenario in 2011-12 would be much shallower than the 2008-09 experience,” Morgan Stanley said.<br /><br />Growth outlook<br /><br />Morgan Stanley further said that “the countries which are more externally oriented such as Korea, Singapore, Malaysia, Taiwan and Thailand will see a greater adjustment in their growth outlook compared with the economies with higher dependence on domestic demand, such as China, India and Indonesia.” Emerging market economies will not be immune to the developed market slowdown.<br /><br />Morgan Stanley expects emerging market growth to fall to 6.4 per cent this year from 6.6 per cent previously, and further to 6.1 per cent from 6.7 per cent in 2012.<br /><br />The report said the downgrade was mainly owing to three main reasons. First, the recent disappointing incoming data, especially in the US and the euro area, secondly, recent policy errors – especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling.<br /><br />“A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US. This should be aggravated by the prospect of fiscal tightening in the US and Europe,” the report said.<br /><br />Saying that the downside risk to growth are more worrying than the upside risks to inflation, Morgan Stanley said, “inflation will continue to be a challenge for longer than what the market was ready for.”</p>