As central banks continue their campaigns to slow inflation, both the United States and Europe are likely to avoid recessions.

China’s reopening and recovery could nearly double its GDP growth to 5.7 per cent this year, supporting regional strength on a cyclical basis. Morgan Stanley’s economists expect growth of 5.7 per cent there in 2023 and 4.9 per cent in 2024.

“The initial reopening surge early this year came from a bounce in sectors hit by COVID, pent-up housing demand and a backlog of export orders,” says Chief China Economist Robin Xing. “We expect growth reacceleration in the second half of this year after a hiccup in the second quarter, thanks to renewed stimulus and new employment in services bolstering private consumption.”

In the medium term, trends such as digitalisation continue to support India’s economy, which is slated to grow by 6.5 per cent this year, Morgan Stanley said in an insight piece.  

For the past year, Morgan Stanley economists have maintained that the US economy is heading for a moderate economic slowdown rather than a full-blown recession.

“We continue to look for a soft landing this year, but that depends on how much tighter credit conditions for households and businesses weigh on economic activity,” says Ellen Zentner, chief US economist at the organisation.

She notes that job gains could slow, lifting US unemployment to 4 per cent by the end of this year and 4.4 per cent by the end of 2024.

Zentner expects the US Federal Reserve to hold its policy rate at 5.1 per cent before starting quarterly cuts of 0.25 per cent in early 2024. Funding pressures in the banking system are a new development for 2023 and Morgan Stanley’s US outlook now points to 1.2 per cent GDP annual growth for this year and 0.8 per cent in 2024.

Inflation in the euro area has been on its way down after peaking at an annualized rate of 10.6% in October 2022, with prices for energy, goods and food receding.

“We expect headline inflation to be 5.4 per cent for in 2023 and 2.3 per cent in 2024,” says chief Europe economist Jens Eisenschmidt. “However, we think that it will take time to get back to the ECB’s [European Central Bank’s] target of 2 per cent and we might not be there by the end of 2024.”

Another relative positive in Europe is that the employment should stay stable while wages, which haven’t kept pace with inflation, are accelerating and should continue to do so until mid-2023.

The combination of declining inflation and rising wages means European workers should start to see their purchasing power increase later this year and into 2024.

“This provides more positive backdrop for private consumption, which accounts for around 50 per cent of GDP in the euro area,” Eisenschmidt notes.

“That said, weakness in exports and investment may get in the way of more meaningful GDP growth as the impact of tighter monetary policy increasingly affects the euro area economy.” The upshot: 0.7 per cent GDP growth in 2023 and 1 per cent growth in 2024.

At first glance, 1.1 per cent GDP growth for 2023 and 2024 may not seem noteworthy for Japan, according to Morgan Stanley. Yet, for Japan, this outlook speaks to strong nominal growth.

Chief Japan economist Takeshi Yamaguchi expects continued strength in private consumption and corporate spending. “Exports are exposed to the overseas economic slowdown ahead, but we expect the yen to stay at relatively weak levels, which differs from past periods, to support the earnings of exporters,” he adds. 

Fibre2Fashion News Desk (DS)