Morgan Stanley raises 2023 euro area GDP growth forecast to 0.8%

(Reuters) – Morgan Stanley on Friday raised its 2023 euro area economic growth forecast by 20 basis points to 0.8% on the back of better-than-expected economic data.

Morgan Stanley said the European Central Bank’s monetary tightening so far has not yet started to affect the real economy strongly but an expected drag prompted the brokerage to cut its 2024 gross domestic product (GDP) growth forecast to 1% from 1.1%.

“We think we could see more robust GDP prints in H1 2023 but some weakening afterwards, as the negative impact of the restrictive monetary policy gains momentum in the euro area, and the outlook for the U.S. economy is also more negative than previously thought,” MS economists led by Jens Eisenschmidt said in a note.

They expect the ECB to deliver three more hikes this year as it battles inflation, which at 6.9% as of March is still above the central bank’s 2% target. The ECB has hiked by 350 basis points in its current hiking cycle.

The euro zone narrowly avoided a technical recession at the end of last year, registering no growth quarter-on-quarter in the final three months of 2022, data showed earlier in March.

HSBC also recently raised its euro zone GDP forecast, expecting a 0.6% rise, while Goldman Sachs sees 0.7% growth. Goldman’s forecast factors in a 0.3% hit from the ongoing stress in the global banking system.

(Reporting by Subhadeep Chakravarty; Editing by Krishna Chandra Eluri and Maju Samuel)