The US subprime crisis may see the world’s largest economy slipping into recession next year and Asia, the world’s fastest growing region, will feel its impact. This typically bearish forecast was made on Friday by Stephen Roach, chairman, Morgan Stanley, Asia. He was speaking in Mumbai at a function organised by Asia Society India Centre on ?Subprime: Canary in a Coal Mine??
He said if the US faces any turbulence, the Asian region would definitely face rough weather and India cannot escape it, despite strong fundamentals. Roach said, ?The global economy is going to be very challenging over the next couple of years. Unlike the situation of ten 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.?
He said, ?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.?
Morgan Stanley is the second investment bank after JP Morgan that has predicted the US economy would slip into recession in 2008.
Commenting on the noticeable slowdown in the US economy, Roach said, ?The slowing that?s occurred in the US right now has been in the home-building 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.?
The Morgan Stanley Asia chief also said, ?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.?
