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World on track for V-Shaped recovery, say Morgan Stanley economists

Morgan Stanley expects a V-shaped global recovery

The global economy is entering a new expansion cycle and output is expected to return to pre-coronavirus levels by the fourth quarter, according to Morgan Stanley economists who back a V-global recovery.

Unlike other analysts who are more cautious with regards to the pace of recovery of the global economy, Morgan Stanley is more optimistic about a sharp bounceback from the pandemic lockdown measures imposed by governments around the world.

“We have greater confidence in our call for a V-shaped global recovery, given recent upside surprises in growth data and policy action,” wrote the US bank’s economists led by Chetan Ahya in a mid-year outlook research note on 14 June.

Morgan Stanley economists expect a “sharp but short” recession, with global gross domestic product growth at -8.6% year on year in the second quarter and a gradual  V-shaped global recovery to 3% by the first quarter of 2021.

Morgan Stanley highlighted three reasons why the recession will be short:

  • This is not an endogenous shock caused by huge imbalances
  • Deleveraging pressures will be moderate
  • Policy support has been timely, sizable and effective in boosting the recovery

However, risks remain as governments and entire industries continue to rely on continued official support with both central banks and finance ministries pumping money into their respective economies.

News on current trials for a possible coronavirus vaccine have a direct effect on how markets behave and will also affect the expected V-shaped global recovery.

“In our base case, we assume that a second wave of infections will occur by autumn, but that it will be manageable and result in selective lockdowns,” the economists wrote, citing a scenario where a vaccine is broadly available by summer of 2021.

“In contrast, we assume in our bear case that we re-enter into the strict lockdown measures implemented earlier this year, resulting in a double-dip,” they wrote.

However, the International Monetary Fund, last week warned that the global economy is recovering more slowly than expected and there remains “profound uncertainty” around the outlook.

Economists at JPMorgan did, however, highlight the risk that surging debt levels may force governments to wind back their massive fiscal stimulus.

“This turn in fiscal policy, together with the limited steps expected from central banks, is an important factor underlying our forecast for an incomplete recovery through 2021,” JPMorgan economists said in a note.

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Galina Mikova

Galina is a Hubspot-certified Technical Writer with over 10 years of experience in working with Fortune 500, private investment, banking, FOREX and niche tech companies as well as crypto and blockchain startups. She has a solid background in FinTech and blockchain technology.

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