Morgan Stanley continues to hammer home their view that economic slow-down fears are being overdone, given that much of the world continues to show surprising strength in their view. You also can't simply project America's Q2 slow-down into the future, they say.
Manoj Pradhan and Joachim Fels:
The error of extrapolation: Yes, the global economy is slowing, but much less sharply than the negative market sentiment would suggest. Global sentiment appears to be largely driven by the sharp deceleration in US GDP growth from 5% in 4Q09 to what now looks like barely more than 1% saar in 2Q10 (2Q GDP revisions are due this Friday, and our team looks for +1.3%). Market participants seem to be projecting this US slowdown into the second half of this year and onto the rest of the world, dismissing both recent positive data surprises in Europe, ASEAN, Korea, Taiwan and parts of Latin America, as well the possibility of a moderate rebound in 2H10 US GDP that our team continues to project. By contrast, we stick to our view that the name of the game for the global economy in 2H10 and 2011 is growth moderation, rather than a double-dip.
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In China, for example, sequential growth is estimated to have slowed down from 2.2%Q (non- annualised) in 1Q to 2.0%Q in 2Q (see Goldilocks on Track Despite Faster Moderation in Growth, July 15, 2010). This is hardly the kind of slowdown that should send warning signals about a dramatic retrenchment of economic activity.
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