Morgan Stanley drops sobering take on GDP outlook

Morgan Stanley just poured cold water on the U.S. GDP story.

At the core is the fact that Americans are getting larger tax refund checks, but not as large as they had hoped.

At the same time, gasoline prices have risen so high that the extra cash might not translate into meaningful spending power for consumers.

Consumer spending drives the U.S. economy, and the bank feels that the latest fiscal boost is unlikely to hit as big as the bulls would have wanted.

Tax refunds are up 14% from the same time last year, but are near the lower end of their forecast range.

Meanwhile, the average refund has risen to $346, but according to Morgan Stanley's estimates, a 15% rise in gas prices, or about $3.60 a gallon, will be enough to wipe that out.

Putting it all together, Morgan Stanley is sticking with its lower 2026 GDP call, expecting real GDP growth of 2.2% and personal consumption rising 1.7%.

U.S. GDP growth from 2020 to 2025 highlights an economic reset

The data show that the U.S. economy pivoted from a Covid-led slowdown to a sharp snapback in 2021.

In the years that followed, the numbers settled into a more moderate growth pattern.

That said, here are the latest annualized real GDP growth numbers, based on the most recent BEA revisions for 2020-2024 and the BEA's third estimate for full-year 2025.

• 2020: U.S. real GDP contracted 2.1%.
• 2021: U.S. real GDP expanded 6.2%.
• 2022: U.S. real GDP grew 2.5%.
• 2023: U.S. real GDP grew 2.9%.
• 2024: U.S. real GDP grew 2.8%.
• 2025: U.S. real GDP grew 2.1%.
  
  Source: U.S. Bureau of Economic Analysis (BEA)

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Why gas prices matter more than tax refunds

Using a household budget analogy, Morgan Stanley says the economy right now is like getting a bonus while also facing a larger bill.

Tax refunds will put some of the cash back in people's pockets, helping with spending.

However, if gas prices jump by 15% (as they have now) and stay elevated, that extra dough just gets soaked up at the pump instead.

So naturally, when consumers have a lot less left for dinners outside, along with travel and shopping, that takes the energy out of the GDP as well.

Tax refunds, gas prices, and tariffs squeeze the consumer story

On paper, the consumer got a break, but in reality, much of that help might disappear at the pump.

As of April 10, total federal tax refunds shot up to $253 billion, up 14.2%, or $32 billion, from the previous year.

That sounds robust, but it landed at the lower end of the bank's 15% to 25% expectation range, and roughly 75% of refunds are typically already paid by mid-April.

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Moreover, the average refund jumped to $3,642, up $346, while 70.5% of processed returns received refunds, up from 67.5% a year ago.

Though that seems like a decent enough boost to spending, the problem remains gasoline.

Morgan Stanley estimates households will spend roughly $2,500 on gas in 2025 and says a 15% bump in gas prices, to nearly $3.60 per gallon, fully offsets the average refund increase. Gas prices were already at $4.11 in the report.

That's why the bank is staying put with its March 20 GDP downgrade.

To recap, it slashed its 2026 4Q-to-4Q output growth view by 0.4 percentage point, with 0.3 point of that linked to private consumption, and now views real GDP growth at 2.2% (2.1% in 2027) and personal consumption at 1.7%.

Tariffs only complicate that story.

Morgan Stanley argues that the effective tariff rate was 8.5% in February, but baseline tariffs ran closer to 11%, with "core" tariffs at 13% to 14%.

Recent 2026 U.S. GDP estimates

• Federal Reserve: The Fed's median projection sees U.S. real GDP rising 2.3% in 2026.
• International Monetary Fund: The IMF expects U.S. real GDP growth of 2.3% in 2026.
• Congressional Budget Office: CBO projects U.S. real GDP growth of 2.2% in 2026.
• Morgan Stanley Research: Morgan Stanley expects U.S. real GDP growth of 1.8% in 2026 on a fourth-quarter to fourth-quarter basis.
• The Conference Board: The Conference Board projects U.S. GDP growth of 1.6% year over year in 2026.

Morgan Stanley says first-quarter GDP may look better than the economy really is

Morgan Stanley believes that the relatively decent Q1 GDP number is sending the wrong message.

The bank's Q1 tracking estimate is around 2.2%, which is above the Atlanta Fed's 1.3% and just below the New York Fed's 2.3%.

However, the bank doesn't see that as proof that the economy is gaining momentum.

In fact, it sees a quarter propped up by temporary quirks.

First, government spending is on the rebound as federal output returns to trend following the Q4 shutdown.

At the same time, software prices are inflating the value of real intellectual property. Collectively, these factors add about 0.5 percentage points to first-quarter GDP.

The softer backdrop cannot be ignored, either.

Consumer spending tracked at just 1.1%, with weakness in goods somewhat offset by steadier services.

On top of that, housing remains weak, while stronger business investment and government spending are doing their best to mask a situation where imports are rising alongside exports.

Related: Morgan Stanley resets Intel stock price target ahead of earnings

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This story was originally published April 23, 2026 at 2:33 PM.