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Morgan Stanley slashes forecast for US economic growth through the end of the year as more stimulus appears 'unlikely'

Sep 28, 2020, 21:26 IST
Business Insider
US Capitol.J. Scott Applewhite/AP Photo
  • Morgan Stanley slashed its forecast for fourth quarter US GDP growth on Sunday to 3.5%. The firm's previous estimate for the quarter was 9.3%.
  • A team of economists said they do not expect a second stimulus package to be released by the end of this year.
  • Morgan Stanley's former 9.3% fourth-quarter growth prediction was one of the highest among major banks, according to data compiled by Bloomberg.
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Morgan Stanley slashed its forecast for US gross domestic product growth in the fourth quarter to 3.5% from 9.3%, citing "diminishing fiscal support" in a Sunday note.

A team of Morgan Stanley economists said that a second stimulus package is "unlikely to be delivered this year." They also noted that a divided government after the election means that more "fiscal gridlock" is to come, whereas a unified government may result in fiscal expansion.

Morgan Stanley's former 9.3% fourth-quarter growth prediction was one of the highest among major banks, according to data compiled by Bloomberg. The firm's forecast cut is just one of the latest in a recent string of slashed growth expectations on Wall Street. Goldman Sachs halved its growth forecast to 3% last week, JPMorgan cut its expectation to 2.5% from 3.5% shortly after, and Bank of America dropped its forecast earlier in September to 3% from 5%.

Read more: 4 reasons why the stock market will be volatile throughout October. And 3 reasons why this presents opportunities, Evercore says

Morgan Stanley's 2020 GDP forecast is now -3.6%, from -3.4%. However, the firm said it believes there has been enough recovery progress that the US economy will return to pre-pandemic levels of real GDP by the middle of 2021.

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The economists added that their policy strategists see a potential path to stimulus this year if there is a "clear weakening of markets" or economic data that pushes Congress to reach an agreement.

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