Morgan Stanley's Asia's chief Stephen Roch has said that there will be no V-shaped recovery for a world economy that has just entered its most severe recession. The worst of the global downturn may run its course by late 2009. After a 5% global growth over the past 5 years, it is likely to average 3% over the next 3 years.
The US consumers have long been ripe for the fall. Vigorous consumption gains consistently outstripping a subpar pace of income generation over the past 14 years, saving-short, overly-indebted households drew freely on the combination of property and credit bubbles to take consumer spending up to a record 72% of real GDP in late 2006 and early 2007. But now, with those twin bubbles having burst, US consumption has fallen sharply at more than a 3% annual rate in the second half of 2008.
In short, prospects for a multi-year compression in US consumer demand pose a major problem for an unbalanced global economy. Americans consumed $9.7 trillion in 2007 more than thrice the combined consumption of only about $3 trillion coming from 40% of the world's population that lives in China and India.
Finally, the asymmetries of global rebalancing could well be decisive in shaping the contour of any recovery in the global economy.
Thursday, January 15, 2009
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