Stephen Roach is still bearish, no recovery until 2010

Recently, I have highlighted the comments of a number of investing gurus, most of whom are fairly positive on the market. This includes Jeremy Grantham, Marc Faber, Bill Fleckenstein, Fred Hickey, Marty Fridson and Steven Leuthold (Louise Yamada is a notable exception). However, when it comes to the global economy, the situation is much murkier, the likes of David Rosenberg at Merrill Lynch/BofA have made the case for continued economic weakness in the United States.

The standard bearer of the global-economy-is-weak-and-needs-rebalancing theme is Stephen Roach. And he is not a tad bullish on the global economy.

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Recently, I have highlighted the comments of a number of investing gurus, most of whom are fairly positive on the market. This includes Jeremy Grantham, Marc Faber, Bill Fleckenstein, Fred Hickey, Marty Fridson and Steven Leuthold (Louise Yamada is a notable exception).  However, when it comes to the global economy, the situation is much murkier, the likes of David Rosenberg at Merrill Lynch/BofA have made the case for continued economic weakness in the United States.

The standard bearer of the global-economy-is-weak-and-needs-rebalancing theme is Morgan Stanley Asia head Stephen Roach. And he is not a tad bullish on the global economy.

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The world is moving into the second wave of the financial crisis, which will be symbolized more by the deterioration in the global business cycle than the financial market itself, said Stephen Roach, chairman of the Hong Kong-based Morgan Stanley Asia.

“I think the second wave will be driven by the weakening of profitability of corporations around the world and that will have a negative impact on their ability to pay back loans to banks and other financial institutions,” said Roach in an exclusive interview with Xinhua at Morgan Stanley Asia’s headquarters.

The first wave came about through the so-called subprime crisis, sparking a broadly based and severe recession in the world economy, he said.

Out of the recession, now comes further weakness in loans outstandings by financial institutions, which will have further negative impact on the earnings of the financial institutions.

“So I think the second wave is just beginning, which reflects more the impact of global business cycle than the credit market contagion itself,” said the chairman.

GRIM OUTLOOK FOR WORLD ECONOMY IN 2009

Roach noted that the world economic recession is not bottoming. “I think there’s more to come in terms of the weakness of the world economy.”

“When the year is finished, I think 2009 will represent the first decline for an entire year in world GDP we have see since the end of World War II,” he said.

Roach said that the drops of the global economy in the last three quarters of the year may not be as severe as in the early months of 2009, but the global economy is going to keep declining.

“There is weakness across the world. Every major developed economy is in recession. We’ve never seen that before,” he said.

And most large developing countries, including China, are either slowing very sharply or they are too in recession.

“This is a synchronous downturn in the global economy. There is quite a great deal further to go in my opinion,” he said, adding that unemployment will keep increasing for the better part of the final three quarters of 2009.

The world economy may bounce up a while by the end of the year, as there had been very steep decline in most economies in the fourth quarter of 2008 and equally steep drop in first quarter of 2009, he said.

“So statistically, you can get a positive increase in some point in the remaining three quarters, but that will be short-lived,” he said.

In large part, the global economy will be in a contraction mode through the end of this year, possibly, in the early of next year, he said.

The article goes on to present Roach’s view on major risks for 2009, as well as the Chinese growth story. But, the long and short of Roach’s view is that a weak global recovery will not begin until 2010.

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Source
Stephen Roach: World moving into second wave of financial crisis – Xinhua

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