EU and US could reach trade deal this weekend - Reuters
Investing.com - Analysts at Morgan Stanley (NYSE:MS) have slashed their prediction for U.S. economic growth this year and projected a "sharp firming" in inflation, citing possible disruptions from President Donald Trump's tariff agenda.
In a note to clients, the strategists led by Michael T Gapen said they now expect real U.S. gross domestic product to come in at 0.8% in 2025 and 0.7% in 2026, down from their earlier forecasts of 1.5% and 1.2%.
Headline and core personal consumption expenditures -- a key gauge of inflation closely watched by the Federal Reserve -- are also tipped to stand at 3.4% and 3.9%, respectively, by the end of the year. These would be about a full percentage point higher than previous expectations, the analysts flagged.
The unemployment rate is seen increasing to 4.9%, as higher uncertainty around the trajectory of Trump's tariffs weighs on business confidence and hiring.
Although they are not anticipating a recession for the U.S. economy, "the gap between a sluggish growth outlook and a downturn has narrowed," the analysts said.
"Our narrative entering the year was 'slower growth, stickier inflation.' In our March revisions our narrative shifted to 'slower growth, firmer inflation' since an earlier implementation of tariffs was halting disinflation at a higher pace of inflation. Now our narrative is squarely in the realm of 'even slower growth and sharply firming inflation.'"
The analysts noted that the scope of some of Trump's tariffs could be "negotiated lower," although they acknowledged that previously "underestimated both the speed of tariff implementation and the level of tariffs put in place."
Markets are still attempting to understand if the Trump administration plans to permanently impose the tariffs, which include a minimum 10% levy for all U.S. imports and targeted rates of up to 50%, or use them as a cudgle during negotiations with trading partners. On Monday, Trump said "both can be true."
U.S. Trade Representative Jamieson Greer is due to tell the Senate Finance Committee on Tuesday that he has been approached by almost 50 countries asking to discuss Trump's sweeping tariffs, according to media reports.
Greer will say in written testimony that several of these countries, like Argentina, Vietnam, and Israel, have suggested they will bring down their tariffs and non-tariff barriers, Reuters reported.