US headed for major recession: Morgan Stanley
Pastor Dale Morgan
US headed for major recession: Morgan Stanley*
December 16, 2007 - 2:59PM
The chairman of investment bank Morgan Stanley's Asian arm, Stephen
Roach, says the United States economy is headed towards a major
recession and the rest of the world should be concerned.
Mr Roach said the US central bank, the Federal Reserve, would have to
cut interest rates again to help boost the US economy, after a smaller
than expected cut of 25 basis points last week disappointed markets.
Asked if the US Federal Reserve would have to move again (to cut rates),
Mr Roach told Sky News' Sunday Business program: "Most assuredly. The US
is going into recession.
"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 said the rest of the world should be concerned that the US was
going into recession.
"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," he said.
"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."
Mr Roach said the US was the world's biggest consumer economy at $US9.5
trillion, compared to China at $1 trillion and India at $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," Mr Roach said.
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.
© 2007 AAP