Vulnerable US economy at risk of recession: analysts

THE chairman of the investment bank Morgan Stanley's Asian arm, Stephen Roach, had declared the US economy is headed towards recession and the rest of the world should be worried about the consequences.

Mr Roach said yesterday the US central bank, the Federal Reserve, would have to cut interest rates again to help boost the economy, after a smaller than expected cut of 25 basis points last week disappointed markets.

Asked if the Federal Reserve would have to reduce interest rates again, Mr Roach told Sky News's 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 1.5 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 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 ($11.04 trillion), compared to China at $US1 trillion and India at $US650 billion.

Read Complete Story