What's going on?
On Monday, Morgan Stanley whipped up an optimistic prediction for the future: it reckons the start of next year will provide all the ingredients we need for a global economic recovery.
What does this mean?
The past two years have seen global economic growth slow from 3.8% to 3%, in part because of the US-China trade war. But Morgan Stanley thinks those tensions could be about to sweeten: there were reports of “constructive talks” over the weekend, and investors feel increasingly convinced a deal will be reached. Lower tariffs will work in both countries’ favors – as well as those caught in the crossfire, like Germany.
Morgan Stanley also thinks interest rate cuts could have tasty consequences: rates in the US were slashed this year after a series of rises, and China may do the same to its main interest rate on Wednesday. Low rates tend to encourage companies to borrow and spend, which drives economic growth. Mix ‘em with trade peace, then, and the bank reckons you’ve got the recipe for an economic recovery in 2020’s first quarter.
Why should I care?
For markets: See past the States.
The US does stand to benefit from a trade agreement, but as the country’s in the “late stage” of its longest-ever expansion, it doesn’t have that much room to grow. Morgan Stanley thinks investors would be better off investing in emerging markets, which have been badly affected by reduced Chinese demand for their products. A détente should reverse that, and their economies – which, unlike the US, still have lots of growth potential – could soar.
The bigger picture: Don’t get too comfortable.
Morgan Stanley warns there’s a big risk things could end up worse than it’s predicting. Trying to forecast the US president’s moves is a dangerous game, and if further tariffs appear in December, the recovery could be pushed into the second half of 2020. Unless, of course, November’s US election ends up spooking markets…