Episode summary
Economic Roundtable: Why Is Global Growth So Resilient?
Thoughts on the Market (Morgan Stanley)
· · 15 min · Hosts: Seth Carpenter, Michael Gapen, Yens Eisenmidz, Jathan Aaya
Summary
Global growth has held up better than expected because investment has been doing more of the work. The host and the panelists argued that AI-related spending has been a major force in the US, with spillovers into asset prices and upper-income household spending, while Europe has benefited from AI-related external demand, some geopolitically driven export gains, and a consumer that has been sturdier than feared. In Asia, the panelist said a strong capex cycle, broadening exports, and healthy balance sheets have helped the region absorb higher oil prices and higher rates.
The panel also said this resilience is becoming more broad-based. In the US, manufacturing is showing some improvement beyond the narrow AI trade. In Europe, the investment side is still weaker than consumption in GDP terms, but the panelist expects investment to matter more as monetary easing works through the economy. In Asia, the story has broadened from exports and capex into consumption as labor markets improve.
The main risks are still tied to policy and energy. The panelists pointed to higher rates, a too-tight monetary stance, an energy shock that hurts household purchasing power, and in Asia a possible contraction in AI investment or oil moving into a $130 to $150 range. China remains the weakest link because its consumer is still burdened by property weakness, weak wage income, and deleveraging.
Key takeaways
- The host and panelists said AI spending is a major US growth driver, and it is also supporting asset prices and upper-income household demand.
- The Europe analyst said export-led growth, geopolitical shifts, and resilient consumers have kept growth firm, but higher energy prices remain the top downside risk.
- The Asia analyst said regional growth is being supported by capex, stronger exports, and current-account surpluses of $1.6 trillion, or 4.2% of GDP.
- The Asia analyst warned that oil at $130 to $150 a barrel would be a major problem for the region.
- The China outlook remains weak because the consumer is still pressured by property adjustment, soft wages, and deleveraging.
- The host said the next policy question is whether central banks can tighten without pushing the economy too far.
Notable quotes
“AI is accounting for 4 to 610 contribution to growth in any given quarter you could nudge that a little higher if you think it's creating productivity”
“There was also an element of geopolitical tensions helping some of those producers say chemical industry in Germany comes to mind”
“Asia is benefiting from a strong pickup in capex which initially was led by the tech sector but is now broadening out to energy, defense and broader industrial investments”
“I would say a threshold of $130 to $150 of oil would be a problem for the region”
How the episode opens
Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's global chief economist and head of macro research. — I'm Michael Gapen, chief US economist. — I'm Yens Eisenmidz, chief Europe economist. — And I'm Jathan Aaya, chief Asia economist. — And today, our fourth quarterly economic roundt discussion is going to try to take a wide angle view on the global economy. And it has held up despite higher interest rates, higher energy prices, geopolitical uncertainty, you name it. It's Thursday, October 22nd at 10 a.m. in New York and 400 p.m. in Frankfurt
And 10 p.m. in Hong Kong.
All right, then. Let me start with that big question. Why has global growth held up better than maybe would have been expected given everything that we've seen.
Mike, maybe I'll start from the US perspective with you. What do you think has mattered most? What is driving this, if I dare use an overused word, the resilience of the economy?
Most of us believe AI related spending is interest rate insensitive and geopolitically insensitive and certainly I think the data has borne that out and in the direct translation of AI hypers scalar capex spending to growth we find that AI is accounting for 4 to 610 contribution to growth in any given quarter you could nudge that a little higher if you think it's creating productivity which we do and that spending is underpinning asset market appreciation or certainly has for the past several years and that is underpinning resilient spending by upper income households. So I think in the US the clear answer is AI related spending but also its linkage to asset markets and upper inome households.
Yens let me come to you for the European view. I mean the AI story has been a little bit different in Europe.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- global growth resilience
- ai investment
- higher interest rates
- consumer spending
- trade
Companies and tickers mentioned
- MS
- Morgan Stanley
Watch the episode
Watch “Economic Roundtable: Why Is Global Growth So Resilient?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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