Recession: Analyst Issues Ominous Warning for U.S. Economy

Morgan Stanley, one of the top five banks in the U.S., has raised the probability of a recession hitting the world economy within the next year from 20% to 30% and warned that the S&P 500 over the next year will grow a mere 1.5% from its current level.

“While we don’t believe that a global recession is likely this year, the declining impact of lower oil prices and easier monetary policy on growth starts to worry us,” Morgan Stanley economists led by Elga Bartsch in a report sent on Monday. 

Morgan Stanley ascribed the downgrade to a slowdown in developed market growth led by the U.S.

It now forecasts that U.S. economic growth will decelerate to 1.7% this year and 1.6% next year, from 2.4% last year. It expects the eurozone to grow by 1.5%, down from 1.8%, and cut the outlook for emerging-market economies from 4.4% to four percent.

Overall, global growth is forecast to hit just three percent this year, down from Morgan Stanley’s earlier estimate of 3.3%, with advanced world growth falling to 1.5%.

Morgan Stanley also expects the European Central Bank (ECB) to end the year with a -0.5% deposit rate and the Bank of Japan to carry out another 20-basis-point cut to its already negative rate by July. (Source: “Global recession risk rises to 30pc this year, warn Morgan Stanley,” The Telegraph, March 14, 2016; http://www.telegraph.co.uk/business/2016/03/14/risk-of-fresh-global-recession-rises-to-30pc-this-year-warn-morg/.)

The investment bank said a “low growth environment” had made the world vulnerable to a litany of shocks, including fears that central banks have lost control over domestic financial conditions, while rising political risks from Europe to the Middle East threaten to overwhelm governments. (Source: Ibid.)

Morgan Stanley economists believe that while oil prices are stabilizing, they’re still rather weak, and other data points, like the Manufacturing Purchasing Managers’ Index and global trade, remain close to recession levels.

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