MORGAN STANLEY: Coronavirus: Recession, Response, Recovery
Morgan Stanley issued the following announcement on March 25.
Coronavirus: Recession, Response, Recovery
Falling demand and disrupted supply chains will trigger a global economic recession. However, strong monetary and fiscal policy responses under way could set the stage for a second-half rebound.
Chetan AhyaChief Global Economist, Morgan Stanley Research
Editor's note: This article has been updated since its original publication to include recently released data and commentary.
In just a matter of days, the fight against the coronavirus pandemic—in Italy, broader Europe and the U.S.—has significantly intensified. While most governments and private companies in these economies are initiating more stringent social-distancing measures to contain the spread of the outbreak, the economic damage to the global economy could be significant.
Many uncertainties lie ahead, but assuming our base case for new infections of the novel coronavirus to peak in April/May, the bulk of the economic pain could be concentrated in the first half of 2020.
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On the positive side, we are already seeing an aggressive policy response across the world to shore up businesses and workers, maintain liquidity in markets and inject stimulus to create the necessary conditions for a more robust recovery from this shock to the global economic system.
How do we see the way ahead? We start with a model for the path of this pandemic. In his base case, our U.S. biotech analyst, Matthew Harrison, now expects new confirmed coronavirus cases to peak in April/May. In that scenario, given the aggressive monetary and fiscal policy responses in the pipeline, we would expect economic growth to start recovering in the third quarter of this year. The risk to this forecast: Disruption to most pillars of the economy that continues beyond the second quarter.
Growing disruptions to the U.S. economy are key to this outlook. Chief U.S. Economist Ellen Zentner now expects a full-year 2020 contraction of 3.0%, instead of her previous 0.6% growth forecast. Such a decline would trim global growth to 0.3% for 2020 from the 3.4% we forecast before the outbreak—close to 2009 Global Financial Crisis (GFC) lows, when the global economy contracted by 0.5%.
Many uncertainties lie ahead, but assuming our base case for new infections of the novel coronavirus to peak in April/May, the bulk of the economic pain could be concentrated in the first half of 2020, with the global economy contracting on a annualized basis by 0.6% and 2.1%, respectively, in the first and second quarters. If a recovery takes root in the third quarter, the global economy could rebound to 4.8% growth, year on year, in 2021.
Original source: https://www.morganstanley.com/ideas/coronavirus-impact-on-global-growth