Were in a Recession........so says Morgan Stanley

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

01/08 10:58 Morgan Stanley's Roach Sees 45% Chance of Global Recession By Michael McKee

Washington, Jan. 8 (Bloomberg) -- The U.S. is now in a recession and there is a 45 percent chance that deterioration in the world's largest economy will lead to a global recession in 2001, said economists at Morgan Stanley Dean Witter in New York.

In a message to clients today, Morgan Stanley Chief Economist Stephen Roach and Chief U.S. Economist Richard Berner said U.S. gross domestic product will contract by an annualized 1.25 percent in the first half of this year. For all of 2001, the U.S. economy will grow just 1.1 percent, down from their prior forecast of 2.5 percent. Morgan Stanley is the largest U.S. securities firm by market value.

While the projected first-half decline would be the mildest recession in U.S. history, ``the risk is that it will be deeper and longer than most,'' Roach said. The economy probably grew more than 4 percent last year -- the fourth straight year with growth at that rate or better.

Growth slowed to a 2.2 percent annual rate in the third quarter from a 5.6 percent pace in the second. The latest forecast from economists surveyed by Bloomberg News is for a 2.7 percent growth rate in last year's fourth quarter. Most economists had been forecasting growth at about a 2.5 percent pace for the first half of this year.

U.S. weakness will feed through to other economies, Roach and Berner said. As a result, they slashed their estimate for global growth in 2001 to 2.9 percent from 3.5 percent, which they said is the largest cut ever made to their global growth forecast.

The $32 trillion global economy ``has essentially turned on a dime,'' Roach said. ``It's time to make it official. The downside risks we have been warning of over the past several months are now coming to pass.''

U.S. Conditions

He and Berner cite a number of conditions hurting the U.S. economy, including an end to a strong cycle of investment in information technology, weaker export markets, California's energy crisis, and a growing credit crunch.

The drop in U.S. stocks will have a devastating effect on consumer spending, with the market drop hurting the economy more than the stock price gains of recent years helped boost growth, the Morgan Stanley economists said. ``Modeling a mild recession in this climate may turn out to be a heroic leap of faith,'' Roach said.

The biggest impact of the forecast U.S. recession will be in the developing world, Roach and Berner said. Their forecast for growth in Asia outside of Japan was cut to 5.8 percent from 6 percent for 2001, which would be the region's lowest growth rate in a decade.

``While our latest prognosis for non-Japan Asia may still seem overly optimistic, it actually represents a major blow to the region,'' Roach wrote.

Japan will grow just 0.3 percent in 2001, the two economists said. That's lower than their original forecast of 0.6 percent growth. ``A much weaker yen provides some offset. Nevertheless, the risk of yet another recession in Japan can hardly be ruled out in this climate,'' Roach said.

Morgan Stanley also cut its growth forecast for Canada to 2.5 percent from 3 percent, and for Latin America to 3.6 percent from 4 percent, ``with most countries in the region unlikely to avoid the cold winds blowing up North,'' Roach said.

``Mexico and Canada are major offshore platforms for U.S. manufacturers. There is no question in my mind that Smokestack America is now in recession. Will the rest of Nafta be quick to follow?'' Roach said.

Europe, too, will suffer, although not as badly as other regions, Roach and Berner said. They cut their forecast for European growth to 2.2 percent from 2.5 percent for all of 2001.

For all their pessimism, the Morgan Stanley economists said U.S. and global growth will pick up in 2002. ``As day follows night, recovery is most assuredly in the cards. It's just a question of when, and off what base,'' Roach wrote.



-- kevin (ktross@mailcity.com), January 08, 2001

Answers

"The largest cut ever made in their global economic forecast."

That says a lot.

-- JackW (jpayne@webtv.net), January 08, 2001.


A guy on CNBC said today the long term treasury rate would drop about a point, to around 4.5. If true, Morgan Stanley is right.

-- Wellesley (wellesley@freeport.net), January 08, 2001.

Is there really any question that we are in the process of tumbling into a major recession, right now?

-- QMan (qman@c-zone.net), January 08, 2001.

You elect a Republican President, and there goes the economy! ... instantly.

-- wondering (wondering@toomuchpolitics.net), January 08, 2001.

In reference to Wondering's comment - I don't know if your comment was tongue-in-cheek, but I am going to assume (and if it is an incorrect assumption - forgive me) it actually is your opinion that the demise of the economy is to be laid at the feet of the incoming President. I would ask you to consider the tremendous series of interest rate cuts in 1992 that dropped both the Prime and the Federal funds discount rate to 6% and 3% respectfully. On whose watch did this political decision occur? I think we are now going to have to pay the piper for that decision.

-- Phil Maley (maley@cnw.com), January 09, 2001.


I'll repost the comment I made at Unk's when someone else with memory deficiency disorder made the same comment there. And BTW, I'm the real Wondering, not the imposter above.

"So let's see here. Market indices began declining in feb/march after almost two years of a negative A-D line, petroleum prices through the roof since last January, Fed's been mucking around with interest rates seeking a "soft landing'" since mid-1999, and you're blaming Bush? Someone forget to take his logic pill this morning, or are you normally this nonsensical?" -- Wondering

-- Wondering (the re@lwondering.com), January 10, 2001.


Moderation questions? read the FAQ