Due to concerns from the Russia-Ukraine war and China’s COVID-19 spike, Wall Street Investment-banking giant Morgan Stanley expects global economic growth to be less than half that of 2021. This comes at a time when the central banks are tightening monetary policy to contain record-high inflation. On a year-over-year basis, the brokerage predicts global growth to be 2.9%, roughly 40 basis points lower than consensus, compared to 6.2% in 2021.
China’s COVID-19 restrictions have slowed manufacturing output and stifled domestic demand, wreaking havoc on the economy, with export growth dropping to its lowest level in over two years. After Russia was sanctioned by the West for its invasion of Ukraine, commodity and oil prices rose, aggravating inflationary pressures internationally and forcing governments and central banks to rethink their monetary policies.
With a settlement to the Ukraine conflict appearing improbable and global central banks already attempting to reduce GDP in order to control inflation, Morgan Stanley economists believe that economic growth will be constrained. In a note dated Tuesday, Morgan Stanley economists wrote,
“The deceleration is global, driven by a combination of waning fiscal impetus, tightening monetary policy, a continuing drag from Covid, persistent supply chain frictions, and, most recently, repercussions from the Russian invasion of Ukraine.”
“We now do not see global GDP returning to the pre-Covid trend in the forecast period,” the firm added.
Because of its greater energy import load and continued strength in domestic demand, Morgan Stanley believes India would be the Asian economy most susceptible to inflation threats. Due to a slowdown in the global economy, rising commodity prices, and risk aversion in global capital markets, India’s growth prediction for the fiscal year 2023 has been reduced to 7.6% from 7.9%.
Morgan Stanley isn’t the first to cut India’s GDP forecasts due to escalating geopolitical tensions. In an off-schedule meeting in May, the RBI hiked the repo rate by 40 basis points to 4.4%, citing increasing inflation worries.
