He said Asia’s economies, which were largely export-led, would only recover after their main export markets, the US and Europe, recovered.
“Export-led regions are followers, not leaders,” he said. “The only possibility (to recover earlier) is China, as it has large infrastructure spending in place that could provide support for economic growth.”
Roach has predicted that China will recover by the second half of this year.
He said Asia would grow below market projections this year, forecasting Asian growth at less than 2.5% and the rest of the world at between -1% and 1.5%.
Asked if China could turn its high savings into consumption, he said unless China extended its safety net for employment and social security, consumption in China would remain deficient.
Edward here. One should also note Roach’s views on stimulus and monetary policy which dovetail with what I have said — in a nutshell: fiscal stimulus good, monetary stimulus bad.
Roach also said he doubted that the use of monetary policy to boost the economy could be as effective as before.
“One of the consequences of lowering interest rates is high inflation. But my utmost concern is what the exit strategy for this aggressive easing is? How do you wind down without tipping to deflation,” he said, citing the example of Japan, where the economy had not been stimulated even with near zero interest rates.
On the US financial crisis, Roach said he blamed it on the reckless consumption, politicians and the central bank.
He said the US was only 20% through its deleveraging cycle and that the adjustments being made would take a number of years to complete.
You will have noticed that Roach thinks the deleveraging is only 20% complete. That means 2009 is a complete writeoff. However, when we do resume growth, excessive monetary stimulus may lead to inflation. First the deleveraging and the deflation, then the inflation. But, that’s a story for 2010-2011.
Source Morgan Stanley chief: Asia will be less affected by crisis – The Star Online
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Originally published at Credit Writedowns and reproduced here with the author’s permission.