Morgan Stanley's Even Darker Before the Dawn

Morgan Stanley's report "Even Darker Before the Dawn" looks at China's shift to living with the Coronavirus, pension reform in France, and prospects for a soft landing in the US. The report forecasts a sharp slowdown in GDP growth in 2022, keeping their forecast at roughly 3%Y, less than half of the 6.2%Y growth in 2021. In 2023, they expect global growth to step down to 2.2%Y. The report expects Developed Market economies to be in or near recession, while Emerging Market economies should recover modestly. Inflation is expected to peak in the 4th quarter of this year, with disinflation driving the narrative next year. The report states that major Developed Market central banks are heading into restrictive territory and will likely stay there throughout 2023. Asian central banks are outliers, with the PBOC and BoJ not worried about inflation and maintaining an accommodative stance. Eastern European banks have tightened policy aggressively and in some cases using liquidity and FX interventions. LatAm central banks are at or near the peak in policy rates and looking to eventually normalize if politics allow.