Morgan Stanley lifts U.S. GDP forecast on stronger capex outlook

Investing.com -- Morgan Stanley has raised its 2026 U.S. growth forecast after incorporating what it described as “stronger capex assumptions,” citing firmer business investment linked to rising hyperscaler spending.

Analyst Michael Gapen told clients in a note on Friday that incoming data show “both demand-side and supply-side elements,” prompting the bank to lift its real GDP forecast to 2.6% for 2026, up from 2.4% previously.

Gapen explained that Morgan Stanley’s equity analysts now expect hyperscaler capex in 2026 and 2027 to reach $720 billion and $882 billion, respectively, compared with prior estimates of $603 billion and $702 billion.

The revisions show annual growth “much less slowing than we had anticipated previously,” with the sharper deceleration pushed into 2027.

Morgan Stanley said the updated spending trajectory carries through to nonresidential business fixed investment, lifting its 2026 forecast to 5.3% from 3.1%.

The bank now expects equipment spending to rise 6.4%, intellectual property investment 5.8% and structures 2.1% this year, implying a 0.7-percentage-point contribution to real GDP, compared with 0.4 points previously. Stronger imports also factor into the revised outlook.

Gapen mentioned that the forecast has tilted toward the bank’s “animal spirits” upside scenario, supported by “resiliency in consumer spending” and firmer business investment.

At the same time, payroll revisions imply productivity growth of 2.4% through the third quarter of 2025, up from a previously reported 1.9%.

Meanwhile, downside risks are said to be shifting. Rather than trade protectionism, the bank warned that an AI-driven investment boom “poses ever greater risk” if returns do not materialize, noting that major innovation cycles “have come with credit cycles and boom-bust characteristics.”

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