Morgan Stanley: The impact of energy shocks is greatest on Asia, followed by Europe and the United States

Investing.com - Morgan Stanley analysts say that soaring oil prices will have the most severe impact on Asian economies, while Europe and the US will face relatively moderate economic effects.

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In a report to clients, the bank noted that Asia, which is heavily dependent on imported energy, is particularly vulnerable to shocks.

Morgan Stanley wrote, “Asia is the most vulnerable region in terms of growth because of its heavy reliance on imported energy.” The bank estimates that “a sustained $10 per barrel increase in oil prices is expected to reduce the region’s GDP growth rate by 20-30 basis points.”

The bank added that inflation impacts across the region may still be manageable, noting that “in full transmission, the CPI impact across the region is about 0.4 percentage points,” partially offset by subsidies and price controls in some economies.

In contrast, the impact on the US is expected to be relatively limited.

Morgan Stanley believes that the oil price shock will “temporarily push up overall inflation,” but historical experience shows limited transmission to core inflation.

A 10% increase in oil prices could raise overall inflation by about 30 basis points within a few months, then gradually subside.

The bank also pointed out that unless energy prices significantly weaken consumption or the labor market, broader impacts on US economic growth may remain mild.

Europe faces a more complex stagflation dynamic. Morgan Stanley estimates that in the Eurozone, a sustained $10 per barrel increase in oil prices will “reduce GDP by about 15 basis points while raising inflation by approximately 40 basis points,” with effects lasting several quarters.

Overall, Morgan Stanley states that the main risk of energy shocks may be “increased volatility and uncertainty rather than large-scale growth disruptions.”

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