Morgan Stanley: Global Economy to See Slowest Growth in 2025 Since COVID Pandemic, Possible Recession

Morgan Stanley said that global growth is likely to slow in 2025 and 2026 due to the shock of high US tariffs, which are reducing demand worldwide.

It noted in a report on its website that the global economy will see its slowest growth in 2025 since the COVID pandemic.

The new US trade policy has caused a structural shock to the global economy, as uncertainty caused by higher tariffs has dampened global demand.

Morgan Stanley, one of the largest banking institutions in the United States and the world, expects global growth to decline to an average annual rate of 2.9% this year (or 2.5% in the fourth quarter), as the slowdown in the US economy weighs on the rest of the world.

Inflation is likely to slow in most countries, except for the United States, where tariffs could lead to a rise in consumer prices, peaking in the third quarter. The US bank expects central banks to respond to the decline in growth and inflation by cutting interest rates, with the exception of the United States, where interest rates are likely to remain unchanged until March 2026.

Morgan Stanley also said that governments in the United States, Europe, and China may spend more to stimulate growth, increasing their budget deficits.

“The economic damage is ongoing, and even the full removal of tariffs will not restore global growth to what it was,” said Seth Carpenter, Morgan Stanley’s global chief economist.

He added: “In contrast, raising tariffs to their peak in April is likely to lead to a recession in the United States, and subsequently globally.

We expect trade barriers to rise overall compared to the beginning of the year, with a significant risk of temporary escalation with major trading partners as negotiations reach points of contention.