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Global economic growth is now projected to slow to 2.4 per cent in 2025, down from 2.9 per cent in 2024. The downward revisions in growth forecasts are broad-based, affecting both developed and developing economies. Thus, Morgan Stanley Research forecasts the global economy will expand at an annual rate of 2.9% in 2025 and 2.8% in 2026, down from 3.3% in 2024.
Key research findings
Among vital Morgan Stanley’s research outcomes are the following:
– Global growth is set to weaken to an average annual rate of 2.9% this year compared to the previous year; the US “deceleration” weighs on the rest of the world;
– Inflation is likely to slow in most countries, except in the US, where tariffs may increase consumer prices to a peak in the third quarter;
– Central banks could react to lower growth and inflation with rate cuts, except for the US, where rates are likely to remain steady until March 2026;
– Governments in the US, Europe and China may spend more to stimulate growth, increasing their deficits. This scenario assumes that the U.S. will continue trade negotiations but will not fully eliminate tariffs.
Capital market assessment
In capital markets trends, there are the following trends: – lower interest rates, moderate inflation and modest but positive GDP growth could help boost the M&A market; – Strategic and private equity sponsors are set to be more active users of both the equity and debt capital markets; – Issuers and investors are likely to keep fueling private credit’s growth; – Corporate sector will need to raise capital to spend on AI and other related digital infrastructures.
Capital markets activity, for mergers and acquisitions as well as capital expenditures spending, is “poised for resurgence in 2025”, notes Morgan Stanly research; the trend points to increase and/or revival after a period of little activity. The current economic backdrop (with lower interest rates, subdued inflation and modest but positive GDP growth) has indicated a trend towards a “rebound in strategic investments and capital rising across debt and equity”.
However, the general conclusion is that the capital markets are emerging from a slowdown after the COVID pandemic, when corporations and private equity firms lacked confidence to transact while they grappled with high interest rates and inflation, supply-chain disruptions and geopolitical uncertainty.
“There was too much volatility in markets for clients to have the confidence to pursue strategic opportunities,” notes the co-head of Global Capital Markets at Morgan Stanley and adds that present “more favorable economic conditions have led to an influx of cash into all asset classes; there have not been enough new events, such as M&A and leveraged buyouts, to satisfy demand (but in 2025, that will change, and there will be a lot more activity for a robust year.”
Main corporate trends
In 2025, strategic deals and private equity M&A are poised for growth, as inflation and interest rates have moderated, companies are gaining more appetite to finance strategic events through debt and equity capital markets. Thus, this year companies and investors can monitor the following trends that are set to contribute most to a pickup in capital markets activity: – a rebound in strategic M&A, financed through debt and/or equity; – issuer and investor demand for private credit; – capital spending on infrastructure for artificial intelligence and its energy needs; – unprecedented pent-up investor demand for private and public opportunities.
Source and citations from: https://www.morganstanley.com/insights/articles/capital-markets-outlook-2025
World economy’s outlook
The global economy will see its slowest growth in 2025 since the Covid pandemic, says Morgan Stanly; as the new US trade policy created a structural shock to the world’s economy, with the uncertainty generated by higher tariffs crimping demand globally.
Morgan Stanley Research forecasts the global economy will expand at an annual rate of 2.9% in 2025 and 2.8% in 2026, down from 3.3% in 2024. And it seems that the US would continue trade negotiations but would not fully eliminate tariffs.
“The economic damage is underway, and even fully undoing the tariffs would not restore global growth to where it would have been without them,” says Seth Carpenter, Morgan Stanley’s Chief Global Economist. “Conversely, a re-escalation of tariffs to April’s peak rates would likely spell a recession for the US and thereby the world. We expect higher barriers on trade overall than in the beginning of the year, with high risk of temporary re-escalation with key trading partners as negotiations reach sticking points.”
As global demographics shift, so does the definition of progress: the present Morgan Stanley dispatch explores how nations compare beyond GDP, including such issues as, e.g. where people are living longest; why higher healthcare spending doesn’t guarantee better outcomes, and which countries are climbing fast in education and earnings.
Central banks and fiscal policy
Inflation is likely to continue losing steam globally except for the US, slowing to 2.1% in 2025 and 2% in 2026, from 2.4% in 2024. Weaker demand, currency appreciation and lower oil prices are driving the slowdown in consumer prices.
With lower inflation and slower growth, central banks could be more inclined to reduce interest rates; hence, the US is again an outlier, with the Federal Reserve likely to hold rates steady until March 2026.
The US, the euro area in the EU and China are likely to increase government spending to support their economies, leading to an increase in public deficits. Germany’s deficit could rise to its highest level since its 1990 unification as the country invests in infrastructure and defense.
In the US, rising interest costs are also driving up the deficit. As to investment banking and capital markets, corporations, organizations and governments around the world rely on Morgan Stanley’s reputation as a global leader in investment banking: its advisory and capital-raising services are recognized as among the best in the industry.
Source: https://www.morganstanley.com/insights/articles/economic-outlook-midyear-2025
Continued easing for the ECB
In the euro area, the main obstacle to growth is lower exports, responds Morgan Stanly. Thus, European economy is likely to expand 1% in 2025 and 0.9% in 2026, after growing 0.8% last year, while inflation should fall below the European Central Bank’s target in the course of 2025 and remain there afterwards.
“Falling inflation, weak growth and a stronger euro make the decisions for the ECB easier,” says Jens Eisenschmidt, Morgan Stanley’s Chief Europe Economist. “We forecast that the ECB will continue its easing cycle, bringing the policy rate below neutral to 1.5% by December 2025”, he added.
More in Morgan Stanley reports in: https://www.morganstanley.com/insights