Morgan Stanley: The US May Avoid Recession, but Europe Certainly Will Not

The United Kingdom and eurozone economies are likely to fall into recession next year, but the United States could narrowly escape thanks to a resilient labor market, according to investment bank Morgan Stanley.

The expected reopening of China after nearly three years of COVID-19 containment is expected to result in a recovery of its economy, as well as other developing Asian markets, analysts at the investment bank estimate.

For 2023, they forecast global economic growth of 2.2 percent, which is below the latest estimate from the International Monetary Fund of 2.7 percent growth.

Morgan Stanley predicts a divide next year between developed economies ‘in recession or close to it’, while developing economies will ‘modestly recover’.

It estimates that the Chinese economy will grow by five percent next year, above the 3.7 percent growth expected for developing markets, while the average growth in the group of 10 developed countries is projected at only 0.3 percent.

Central banks around the world have raised interest rates this year to curb inflation. Morgan Stanley estimates that in the US, the Federal Reserve will maintain high rates in 2023 as inflation remains high, following a peak in the fourth quarter of this year.

– The US economy will narrowly avoid recession in 2023, but the landing due to a significant slowdown in employment growth will not be so soft, while the unemployment rate will continue to rise – the report states, which forecasts US GDP growth of 0.5 percent next year.

– The cumulative effect of tight monetary policy in 2023 will spill over into 2024, resulting in two very weak years – it adds.

On a global level, the peak of inflation is expected to occur in the last quarter of this year, analysts wrote, ‘with a reduction in inflation rates that will lead the story next year.’