Post by unlawflcombatnt on Nov 23, 2007 4:20:36 GMT -6
from Boom2Bust:
U.S. Recession Will Affect Asia
"Stephen Roach, Chairman of Morgan Stanley Asia, gave a speech earlier today in Mumbai, India, where he talked about the U.S.-Asian economic outlook. Roach is well-known on Wall Street as a perennial “bear” on the U.S. economy. In November 2004 (while still Morgan Stanley’s chief economist), he attended a meeting with a select group of fund managers and shocked the audience with his observation that the U.S. had no better than a 10% chance of avoiding an economic “Armageddon”.
On the probability of recession in the United States, Roach told his audience:
I want to make three points with you today in my discussion. Number one, I think the global economy is going to be very challenging over the next couple of years. Unlike the situation of 10 years ago, when global problems were made in Asia, I think global problems will be made in America. I think the risk of a recession in the US in 2008, is high and rising. You don’t want to put any real precision on probabilities like that, but I would say it’s a number. Now that has unfortunately moved above that 50% threshold for 2008.
On how a U.S. recession will affect Asia:
Second point I want to make is, if the US goes into recession, you are going to feel it in Asia, you are going to feel it in India. The fundamentals for Asia are terrific. But Asia as a region, and developing Asia in particular, remains very much an *export led region, maybe a little bit less than that for India than typical developing Asian economies. But certainly the case in Eastern Asia and China are on the leading edge of that. So, if the US sneezes, Asia will catch a cold. I don’t believe in global decoupling and I will tell you why as we go through this discussion.
On why he doesn’t believe in the theory of “decoupling”:
I think the thing that worries me the most, and this is where I would really underscore the point for you in India, is that equity markets in this region, including your own, are discounting this optimistic, rosy scenario called decoupling. There is the strong belief that because the US has slowed so far, and Asia hasn’t, that any further slowdown will leave Asia unscathed. Think about it for a second. The slowing that’s occurred in the US right now has been in homebuilding activity. It’s America’s least global sector. You stop building a house in America, there’s almost no impact on Asian exports to the US. The slowing that will be coming over the next year will be in the consumer demand sector, which is America’s most global sector. So, we are going to see the US slowdown go from a domestically driven to a globally driven slowdown. I am sorry, as bullish as I am about Asia, Asia will not be an oasis of prosperity in a softer global demand climate. To the extent that emerging market equities are buyers of the global decoupling thesis, including in your own market right here, I think there could be a significant correction in emerging market equities that certainly could hit the Indian stock market quite hard."
U.S. Recession Will Affect Asia
"Stephen Roach, Chairman of Morgan Stanley Asia, gave a speech earlier today in Mumbai, India, where he talked about the U.S.-Asian economic outlook. Roach is well-known on Wall Street as a perennial “bear” on the U.S. economy. In November 2004 (while still Morgan Stanley’s chief economist), he attended a meeting with a select group of fund managers and shocked the audience with his observation that the U.S. had no better than a 10% chance of avoiding an economic “Armageddon”.
On the probability of recession in the United States, Roach told his audience:
I want to make three points with you today in my discussion. Number one, I think the global economy is going to be very challenging over the next couple of years. Unlike the situation of 10 years ago, when global problems were made in Asia, I think global problems will be made in America. I think the risk of a recession in the US in 2008, is high and rising. You don’t want to put any real precision on probabilities like that, but I would say it’s a number. Now that has unfortunately moved above that 50% threshold for 2008.
On how a U.S. recession will affect Asia:
Second point I want to make is, if the US goes into recession, you are going to feel it in Asia, you are going to feel it in India. The fundamentals for Asia are terrific. But Asia as a region, and developing Asia in particular, remains very much an *export led region, maybe a little bit less than that for India than typical developing Asian economies. But certainly the case in Eastern Asia and China are on the leading edge of that. So, if the US sneezes, Asia will catch a cold. I don’t believe in global decoupling and I will tell you why as we go through this discussion.
On why he doesn’t believe in the theory of “decoupling”:
I think the thing that worries me the most, and this is where I would really underscore the point for you in India, is that equity markets in this region, including your own, are discounting this optimistic, rosy scenario called decoupling. There is the strong belief that because the US has slowed so far, and Asia hasn’t, that any further slowdown will leave Asia unscathed. Think about it for a second. The slowing that’s occurred in the US right now has been in homebuilding activity. It’s America’s least global sector. You stop building a house in America, there’s almost no impact on Asian exports to the US. The slowing that will be coming over the next year will be in the consumer demand sector, which is America’s most global sector. So, we are going to see the US slowdown go from a domestically driven to a globally driven slowdown. I am sorry, as bullish as I am about Asia, Asia will not be an oasis of prosperity in a softer global demand climate. To the extent that emerging market equities are buyers of the global decoupling thesis, including in your own market right here, I think there could be a significant correction in emerging market equities that certainly could hit the Indian stock market quite hard."