US headed for recession: Morgan Stanley

Posted on December 17, 2007 
Filed Under Economy

Stephen Roach, chairman of Morgan Stanley’s Asian arm says the US economy is headed towards recession – and Asia should be concerned.

“What is interesting, and potentially disturbing, is that the rest of the world doesn’t seem to think this is a big deal any more. There is a view that that the world is somehow decoupled from the American growth engine. I think that view will turn out to be dead wrong, and this is a global event with consequences for Asia and Australia,” he said.

Roach said the US was the world’s biggest consumer economy at US$9.5 trillion, compared to China at US$1 trillion and India at US$650 billion.

He said the key issue for economies outside the US was to determine how much internal demand of their own did they have to offset any shortfall from US consumers.

“My conclusion is: not nearly as much as you would like.” He said growth in Asia was vigorous but was export-led, and the end game of the Asian growth machine was directed at US consumers.

The new consumers in China and India would not be able to offset falls in US consumption.

The Federal Reserve is widely expected to cut interest rates again this week.

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