Morgan Stanley cut its forecast for global growth this year, citing an “insufficient” response to Europe’s sovereign debt crisis, weakened confidence and the prospect of fiscal tightening.
The bank estimates growth of 3.9 percent, down from a previous forecast of 4.2 percent, according to an e-mailed report dated yesterday. A prediction of 3.8 percent for next year is down from 4.5 percent previously.
The threat to the global economy from the debt burdens of developed nations from the US to Europe has roiled world markets this month and wiped trillions of dollars off the value of equities. At the same time, slowing expansions in nations — including Germany, the key driver of European growth — are hurting confidence.
The US and Europe are “dangerously close to recession,” Morgan Stanley analysts, including Chetan Ahya, said in the note. “Recent policy errors, especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling, have weighed down on financial markets and eroded business and consumer confidence.”
Emerging-markets stocks fell for the first time in four days as Morgan Stanley lowered its forecast for global economic growth.
The MSCI Emerging Markets Index slid 1.4 percent to 1,010.38 at 3:43pm in Hong Kong, set for its biggest drop since Aug. 9. South Korea’s KOSPI sank 1.7 percent, Taiwan’s TAIEX lost 1.6 percent and China’s Shanghai Composite Index slumped 1.6 percent. Vietnam’s stock index rose 2.4 percent, the most in Asia.
“We’ve been very cautious since the beginning of this year,” Tan Teng Boo, who manages about US$350 million as managing director of Capital Dynamics Asset Management Sdn, said in a Bloomberg Television interview. “The global economy has a lot of imbalances, the developed economies have run out of policy options, and in some sense the emerging-market economies have also run out of options.”
Hong Kong will have a “shallow recession” with the economy contracting in the third quarter from the previous three months, Morgan Stanley said in another e-mailed note yesterday.
The bank trimmed an estimate for China’s growth next year to 8.7 percent from 9 percent. Deutsche Bank lowered its prediction for this year to 8.9 percent from 9.1 percent in a report on Wednesday.
Morgan Stanley also cut its estimates for Taiwan from 5 percent to 4.2 percent this year, and from 4.3 percent to 3.6 percent next year.
It lowered its growth forecast for the G10 nations to 1.5 percent this year and next, down from previous forecasts of 1.9 percent this year and 2.4 percent next year, the report showed.
“A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US,” the analysts said. “This should be aggravated by the prospect of fiscal tightening in the US and Europe.”
France’s growth stalled in the second quarter, while the German economy gained 0.1 percent from the first quarter.
In the US, the Federal Reserve has pledged to keep interest rates at a record low through the middle of 2013, indicating that the world’s biggest economy will continue to need support.