Photographer: Luke Sharrett/Bloomberg

Ignore the ‘Faint Whiff of Panic;’ Global Growth Is Accelerating

You wouldn’t know it given the noise from China and Greece, but the world economy is picking up steam.

Morgan Stanley predicted on Thursday global expansion of almost 4 percent in the second half of this year, up from 2.9 percent in the first six months.

The firm says monetary stimulus is taking hold and will even be extended by 18 central banks this year, enough reason for optimism despite it also forecasting a protracted slowdown in China and 75 percent risk of Greece leaving the euro.

“The strength of domestic demand in developed economies will be the key engine of growth,” Chetan Ahya and Elga Bartsch, Morgan Stanley’s co-chief economists, told clients. “We expect the global economy to continue on the path of gradual recovery.”

At Credit Suisse Group AG, economists are sanguine even as they detect a “faint whiff of panic” over China’s stock-market rout and the mounting prospect of Greece’s exit from the euro.

They nevertheless project improvements in the U.S. and Japanese economies alongside strengthening momentum in industrial production worldwide. A third consecutive gain in monthly new orders internationally is supporting their optimism as they reckon it’s the best lead indicator of demand for goods.

The upbeat tones stand in contrast to that of the International Monetary Fund, which this week said the world economy will grow 3.3 percent in 2015, below the 3.5 percent it estimated in April. Much of that reduction, however, was due to the U.S.’s weak first quarter.

Limited Contagion

Why the potential lack of contagion? For Greece, it’s confidence that euro-area authorities can prevent it by using tools such as the European Central Bank’s bond-buying programs in case the country is forced to adopt a new currency.

In China, equities still account for just about 20 percent of household wealth so their influence is limited and consumption also plays a smaller role in gross domestic product than elsewhere.

While the MSCI World Index of stocks is set for its third straight weekly decline, Hans Mikkelsen, a credit strategist at Bank of America Corp. points to gauges measuring the outlook for inflation in the next five years as the “key thing” for investors to focus on when determining the future.

“The current situation where long-term inflation expectations are robust -- despite the big declines in oil prices -- depicts a much better outlook for global growth,” he said.

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