In one of its latest reports $MS (Morgan Stanley) has published its projections as to the expected trajectory of the US economy post Covid-19.
The GDP growth forecasts are as follows:
2021: +6,5% YoY
2022: +5% YoY.
This is yet another bank that expects a relatively quick recovery ahead this time around. It is also in opposition to what happened after the Great Financial Crisis (2007-2009). Back then, due to the fact that long-term effects of the crisis (mainly in the housing sector, as well as in the structure of unemployment), many economists called for a “slower for longer” type of GDP growth trajectory. And so it turned out as well. The 2010-2020 decade was generally a decade of slower growth. The attached Exhibit 1 shows it very clearly that the US real GDP has never really recovered to the pre-Lehman trajectory.
This time around the projections show something totally opposite. Should the $MS forecasts turn out to be true, the US real GDP will have recovered the pre-Covid trajectory as soon as this year! In 3Q21 to be exact. Moreover it shall most possibly exceed this trajectory in 2022. Please refer to Exhibit2 attached.
OK so what does it all mean?
Covid recession was/is a structural one. One of the main results of structural recessions are usually:
(a) a change of how the economy works (here we’d say it’s mostly going online from offline with everything) and …
(b) it forces cost-saving processes that are very deep and long-term in their effects (here we’d say it’s mostly cost cutting in the areas of human labour and facilities (remote work)). The forecasts might indeed sound bullish, but if you actually think about how the world has changed over the last year, they are not extreme at all.
What’s the readacross?
The strong macroeconomic forecats definitely add to the unprecedented strenght in the risky assets space like equities ($SPX500, $NSDQ100). If you add to it the Fed put (unlimited liquidity support from the central bank), you get a pretty bullish mix in the long run.
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