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03.06.2019 17:02

Morgan Stanley sees global recession ‘in three quarters’ if Trump escalates trade war

Investors are overlooking the threat posed by the U.S.-China trade war, which could send the global economy into recession in less than a year, according to a research note published by Morgan Stanley.

Chetan Ahya, the investment bank’s chief economist, noted that the outcome of the trade war at the moment “is highly uncertain” but warned that if the U.S. follows through with 25% tariffs on the additional Chinese imports, “We could end up in a recession in three quarters.”

“Is such a prognosis alarmist? We think otherwise,” Ahya wrote.

In particular, investors are not fully appreciating the effect of reduced capital expenditures, which could drive down global demand, according to the bank.

An economic slowdown in early 2020 could hamstring Trump’s electoral chances. While policymakers are likely to act to stem the effects of a trade war, “given the customary lag before policy measures impact real economic activity, a downdraft in global growth appears inevitable,” according to Ahya.


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