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US on recession course: Morgan

(SYDNEY) The US is heading for a recession and the rest of the world would be ‘dead wrong’ to think this will not impact growing Asian economies, Morgan Stanley senior executive Stephen Roach said yesterday.

In an interview with Sky News in Australia, Mr Roach said that the US Federal Reserve Bank would ‘most assuredly’ cut interest rates again soon to boost the economy, following last week’s 25 basis point reduction. ‘The US is going into recession,’ he said.

‘They (the Federal Reserve) have a lot more work to do. They could cut their policy short-term interest rate by one to one-and-a- half percentage points over the next nine to 12 months.’

Mr Roach, who is chairman of the investment bank and trading firm’s Asian arm, said that it was wrong to think that the rapidly developing economies of China and India could fully compensate for a US recession.

‘What is interesting, and potentially disturbing, is that the rest of the world just doesn’t think this is a big deal any more,’ he said of the potential of a US recession. ‘There is a view 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.’

Mr Roach, in Australia for a business roundtable, said that economies outside of the US needed to determine how their internal consumer demand compared with demand from American consumers in terms of keeping their economies booming. ‘My conclusion is: not nearly as much as you would like,’ said Mr Roach.

Growth in Asia was export-led, with the American consumer often the ‘end game’ of the Asian growth machine, he said.

‘The US is a US$9.5 trillion consumer. China is a US$1 trillion consumer. India’s a US$650 billion consumer,’ he said.

 

Source: AFP (Business Times 17 Dec 07)

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