Morgan Stanley Cuts Global Growth Outlook Even Amid Trade Truce

(Bloomberg) --

Morgan Stanley lowered its growth forecast for the global economy despite U.S. President Donald Trump and his Chinese counterpart Xi Jinping agreeing over the weekend to resume trade talks.

Economists led by Chetan Ahya said the truce wasn't enough to remove the uncertainty around trade policy, which will weigh on the growth outlook, regardless of likely monetary policy easing, including from the Federal Reserve.

Morgan Stanley cut both its 2019 and 2020 growth forecasts by 20 basis points each to 3% and 3.2%, respectively. The economists project global growth will slow to a six-year trough of 2.9% by year-end from 3.2% in the first quarter of 2019.

Read: Economists Are Skeptical That Trump-Xi Truce Will Rescue Growth

While the U.S.-China agreement to delay further tariffs and resume trade negotiations was cheered by investors, Morgan Stanley said it doesn't offer clarity on the critical issues. An escalation of tariff wars, if sustained, would push the global economy into a recession, they said.

“We project global growth to slow even further, and any sustained escalation from here raises recession risks,” the economists wrote in the note on June 30.

Citigroup Inc. economists also said investors shouldn't stop worrying about trade risks following this weekend's news.

“There was no material de-escalation of tensions but only a pause until further progress,'' Citigroup's Cesar Rojas and Global Chief Economist Catherine Mann said in a Sunday note. ``The impact on the real economy is ongoing from both the current tariffs and the uncertainty on the potential escalation.”

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michelle Jamrisko

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