Halister News

(Bloomberg) -- Morgan Stanley expects growth in developed markets to decelerate to 1.4% annually in 2016 from 1.9% in 2015 and further to 1.2% in 2017, analysts including Chetan Ahya and Ellen Zentner write in note received today.

• Growth to miss consensus expectations, especially in the U.S; leads central bank policy to be easier for longer, with no Fed hike through the end of 2017 vs. prev. forecast for 3 rate hikes
  • Other DM central banks may ease monetary policy over summer
  • Expect 40 bps of BOE rate cuts in 3Q16 and additional QE in the autumn vs previous expectation for 50bp of hikes in 2017
  • Canada to cut 25 bps cuts 4Q16 vs. unchanged previously
• Lowflation environment to prevail, reflecting slower growth and a wider output gap
  • Core inflation in U.S., Eurozone and Japan to remain subdued and well below central banks’ targets
• Reactivating fiscal policy will become more critical as effectiveness of monetary policy wanes
  • Japan to announce fiscal stimulus soon
  • Other developed markets will be constrained in their response due to relevant political cycle
  • Slowdown in domestic demand in the initial quarters should be more concentrated in capex spending
  • Improvements in the labor market will likely begin to stall as growth weakens, which should in turn weigh on the consumer