Morgan Stanley Flags Global Growth as “Skewed to the Downside” — Here’s What That Means
As tariffs linger and inflation dips, Morgan Stanley warns the global economy is entering a zone of softer demand, weaker growth — and a lower ceiling.
May 27, 2025
The Signal from Morgan Stanley: The Ceiling Just Got Lower
Morgan Stanley just issued one of the bluntest mid-year outlooks yet: global growth is decelerating, and the risk distribution isn’t balanced — it's skewed hard to the downside.
Key callouts from their internal model:
Global growth to fall from 2.5% in Q4 2024 to 1% by Q4 2025
Tariffs are likely to remain elevated, especially in the U.S.
Even if geopolitical tensions cool, the economic drag is already embedded in sentiment and pricing
“Policy uncertainty remains high... even full de-escalation won’t deliver a sharp rebound.”
What’s Driving the Downturn?
The report identifies two key drivers:
Tariffs as persistent structural friction
They act as a tax on consumption, reduce corporate investment, and blunt margin expansion.
U.S. clients feel less uncertain — but pricing damage is now baked in, especially for exporters and consumer cyclicals.
Cooling inflation = lower nominal growth
Europe never breaks above 1% YoY real GDP through 2026.
China loses ~0.5 percentage points of growth next year.
The U.S. sees growth slow faster than inflation, keeping real growth compressed.
“This is the uncomfortable middle: inflation softens, but demand doesn’t return.”
Where the Data Hits Hardest
Eurozone: Disinflation continues but growth remains stuck below ECB targets
China: Trade weakness + internal consumption lag = near stall-out in key sectors
Japan: Export softness is offset by resilient internal consumption
India: The only standout, clocking ~6% Q4/Q4 growth — the macro darling of 2025
Meanwhile, the Fed is projected to stay on hold through 2025, only cutting into 2026. And no, foreign investors aren’t dumping U.S. assets — yet — but they’re watching.
The Real Takeaway for Investors
This isn’t a crash call — it’s a ceiling reset.
The upside is muted. The downside risk is growing. And in this environment, Morgan Stanley warns: don’t confuse stability with strength.