US can bypass recession, but Europe won’t be so lucky, says Morgan Stanley

The UK and eurozone economies are set to enter recession next year, Morgan Stanley said, but the US could narrowly escape thanks to a resilient labor market.

At the same time, China’s expected reopening after nearly three years of Covid-19 restrictions is likely to trigger a recovery in its own economy and other emerging Asian markets, analysts at the investment bank said in a series of reports published on Sunday. .

“Risks are on the downside,” the reports said, projecting that the global economy will grow 2.2% next year, below the latest International Monetary Fund (IMF) growth estimate of 2.7%.

Next year, Morgan Stanley predicts a sharp divide between developed economies “in recession or close to recession” while emerging economies “recover modestly”, but said an overall global recovery is likely to remain difficult.

China’s economy is expected to grow by 5% in 2023, beating the average growth of 3.7% expected for emerging markets, while average growth in the G10 is projected at just 0.3%.

Central banks around the world have raised interest rates this year to contain high inflation, and in the United States, Morgan Stanley predicted the Federal Reserve will keep borrowing costs high in 2023 as inflation remains strong after peaking. in the fourth quarter of this year.

“The US economy only skirts recession in 2023, but the landing does not look so smooth as job growth slows significantly and the unemployment rate continues to rise,” the report said, predicting a 0.5% expansion in the next year. year.

“The cumulative effect of tight monetary policy in 2023 extends into 2024, resulting in two very weak years,” the report added.

Also globally, peak inflation is expected to occur in the current quarter, analysts said, “with disinflation driving the narrative next year.”