Morgan Stanley has revised its estimate for American gross domestic product (GDP) upwards for the second consecutive month.
In a report released today, the firm, which announced this week it would repay the money it received under the Troubled Asset Relief Program (Tarp), said the improvement in financial conditions has outpaced earlier expectations and the recession is now set to subside by the end of the summer.
Economists for Morgan Stanley say they were reassured by unsecured interbank lending spreads and commercial paper quality spreads narrowing to pre-Lehman level. This was combined with a stabilisation of the American housing market, albeit at historically depressed levels, and data showing that real consumer spending rose by about 1% in the first five months of this year.
As a consequence, the projection for GDP over the four quarters of 2009 was revised from a net decline of 1.9% to a fall of 1.5%. Although the turn is expected to come this year, the pace of recovery is likely to be slow, the authors of the report say, as the Federal Reserve unwinds its quantitative easing policy over the next few years.