(Bloomberg) -- Morgan Stanley (NYSE:MS) economists declared a global recession is now their “base case” although the slump won’t as deep as during the financial crisis more than a decade ago.
In a report to clients on Monday, economists led by Chetan Ahya said they now expect global growth of 0.9% this year. That’s worse than 2001’s downturn and low enough for a recession to be declared, but better than the 0.5% contraction of 2009.
“While the policy response will provide downside protection, the underlying damage from both Covid-19’s impact and tighter financial conditions will deliver a material shock to the global economy,” the economists said.
China will see the worst of the economic pain in the first quarter, and the rest of the world in the subsequent three months, Morgan Stanley (NYSE:MS) said. It predicted Chinese output will shrink 5% in the first quarter, and the euro area will suffer the most among developed economies with a 5% contraction over the year.The bank calculates the average global interest rate at 0.48% after the Federal Reserve cut its benchmark to zero this week. That’s below the low of the financial crisis and is likely to fall further, given Morgan Stanley reckons 25 central banks will have eased by the third quarter compared to January.The economists said the outlook could be even worse if the virus’s effect on economies lasts longer than predicted and if financial markets, especially credit, freeze up. If the virus remains a disruption to activity into the third quarter, then an even deeper recession is possible.