Our Global Chief Economist and Global Cross-Asset Strategist
discuss the state of the global economy at the midpoint of 2024,
including how the U.S. and Europe are on growth trajectories
despite volatile economic data.
----- Transcript -----
Serena Tang: Welcome to Thoughts on the
Market. I'm Serena Tang, Morgan Stanley's chief global
cross-asset strategist.
Seth Carpenter: And I’m Seth Carpenter.
Morgan Stanley's global chief economist.
Serena Tang: And on this two-part episode
of the podcast, we'll discuss Morgan Stanley's global mid-year
outlook. Today we'll focus on economics, and tomorrow we'll turn
our attention to strategy.
It's Monday, May 20th, at 10am in New York.
So, Seth, we've seen a lot of volatile economic data since you
published your 2024 year ahead outlook last November. The US has
gone through a few months of downside inflation and upside growth
surprises, followed by renewed inflationary pressures; and in
China, real growth surprise to the upside, but deflation
deepened. In contrast, India and Japan, your two strongest
conviction bullish views, have played out so far.
So, with all this in mind, Seth, what is your outlook for the
global economy and its growth trajectory for the second half of
this year and into 2025?
Seth Carpenter: So, we're pretty
optimistic. We see some mild deceleration in the US relative to
last year's particularly strong growth but not collapsing. And I
think that part is really important. The euro area growth, all
the signs that we've had since we wrote the outlook in November,
updating now it says that growth is actually bottomed out there
and we're starting to see the initial recovery. Now, don't get
carried away. It's not that it's gonna be this massive rebound.
But there should be now a bottoming out gradual growth as
inflation keeps coming down. That means that real wage growth is
actually going to get stronger, and we think consumption starts
to lead the way.
China though, there we've surprised the upside but just an
inflation adjusted growth because fiscal policy has been adding
to capacity they're adding to the ability. And so, deflation has
stayed. It's one of the longest and deepest deflationary episodes
China has had. We think that's actually going to be exporting
deflation to the rest of the world. But in terms of real growth,
they're actually hanging in there around 5 per cent.
Serena Tang: I'm glad you kind of
highlighted the difference between what we're expecting for the
US and Europe and what we're expecting for China, because one of
the themes that I think you touched on in this outlook is
divergence that you see some slowing in the US -- even though
it's very stable, while the rest of the world really is where
growth starts to pick up.
So, what is driving this divergence? How persistent do you think
it will be? And what does it mean for central bank policy?
Seth Carpenter: Let me start with Europe
and the US, the way you framed it. Like I said, European growth
is probably bottom. They had more adverse shocks than the US did.
So, the energy shock -- that was particularly damaging to German
manufacturing, really slowed the European economy down. Whereas
in the US, we had a lot of strong growth last year. Last year we
had growth in the US at just over three per cent. Non-trivial
amount of that growth was enabled by the surge of immigration,
but we still see some residual impetus from fiscal policy.
And so, where are we now? Inflation in the euro area is
continuing to fall. In fact, it's clearer signal down than it has
been, at least for the fourth quarter this year in the US. Growth
is picking up, but not so much that it's going to re-spark
inflation. So, we think the ECB is going to start to cut rates as
soon as next month, as soon as the June meeting. Whereas for the
US, we still have strong growth. Inflation sort of gave us that
head fake in the first quarter, so the Fed's going to have to
wait, we think probably until September.
Serena Tang: And on the point of inflation,
can you actually give us a snapshot of where we are right now and
what your projections from here will be? You know, you talked
about disinflation in the US. What's gonna be driving that?
Seth Carpenter: I think the first thing to
keep in mind is that just globally we see further disinflation
and so the run up in inflation that was, by and large, a global
phenomenon, we do see as abating. For the US specifically,
though, I think there are a few parts that are really important
and always the conversation has to deal with housing.
There, in the United States, we measure housing inflation through
rents, and we know various things. One recent readings on rents
in the market right now have actually been moving roughly
sideways. The statistical agency, the Bureau of Labor Statistics,
that creates the CPI, takes those market-based rents and then
spreads it through an algorithm. And the official statistics
reflect what's going on now over the next couple of quarters. So,
for that reason alone, we think rent inflation, which is 40 per
cent of core CPI, we think that keeps trending down over the rest
of the year.
We see some deflation in consumer goods. That's especially in
automobiles. The deflation that we see in China, that's probably
being exported to the rest of the world, contributes a little bit
more to that downward pressure. So, we feel pretty convicted that
the high inflation that we saw in the first quarter was more
noise than signal, and we get greater disinflation as the year
goes on.
Serena Tang: So finally, I want to ask you
about Japan specifically. It's the region where we're actually
expecting rate hikes. Since it has gone through a structural
shift recently, decades of deflation are now over, seems to be
over. And so, what are your expectations there?
Seth Carpenter: I think it is a fundamental
shift here. We did have decades of essentially zero nominal
growth and that is now clearly, in the rear-view mirror. We see
wage inflation; we see price inflation. When I talk to our
colleagues in research in Tokyo who cover the consumer sector,
the mindset has shifted, and consumers are willing to accept
these higher inflation prints.
And so, in that regard, we do think very much we've shifted from
that zero nominal growth, that sort of
disinflationary-deflationary equilibrium, to one where inflation
will be sustained above target. As a result, the Bank of Japan
got rid of negative interest rate policy. And we think they're
gonna hike into positive territory in July of this year. Probably
again in the beginning of next year.
All, as long as we're right, that inflation is here to stay and
that seems very much the case. Now, why only two rate hikes then
as opposed to more if the world is fundamentally different? And
this, I think, is critical. Governor Ueda, the BOJ, is committed
to making sure that we have shifted to this reflationary
environment. And so, I do think he's going to be cautious and
only hike as much as he can be confident that inflation stays
high for the foreseeable future.
Serena Tang: Seth, thanks so much for
taking the time to talk.
Seth Carpenter: Serena, it's always great
to talk to you.
Serena Tang: And thanks for listening.
Please be sure to tune in for Part Two of this episode, where
Seth and I will discuss our mid-year strategy outlook. If you
enjoy Thoughts on the Market, please leave us a review wherever
you listen, and share the podcast with a friend or colleague
today.
Kommentare (0)
Melde dich an, um einen Kommentar zu schreiben.