Nick Land, The China Post
Speaking at a meeting of Hong Kong investors, Morgan Stanley managing director and chief economist Stephen Roach, yesterday announced a downward revision in the company’s projection for 2001-2002 economic growth in the non-Japan Asia (NJA) region. The revised estimates for NJA regional growth have been cut back by half a percentage point for each year, to 5 percent for 2001, and 6 percent for 2002.
The NJA region accounts for approximately 20 percent of world economic activity, so the new numbers clip 0.1 percent from the company’s global growth forecast for both years. Morgan Stanley now predicts world growth of 2.4 percent in 2001, rising to 3.7 percent next year. The latter figure is also the estimate for the world’s long-term growth trend.
According to IMF conventions, the new figures put the world in overall recession, with the global growth forecast adjusted down below 2.5 percent, which is the threshold corresponding to a global stagnation in average incomes.
Roach told his Hong Kong audience: “We have been warning of this possibility since the start of the year, but now it’s time to make it official. The world is in recession.” Accounting for the downward revision, Roach said that the company had underestimated the vulnerability of the NJA region to the U.S. economic downturn. He anticipated further problems when the damage to U.S. trading partners fed-back into the U.S. economy itself over the coming months, cutting exports and consumption.
“While we anticipated the first stage of the U.S. slowdown, we were not as quick to diagnose the second stage — the surprisingly swift collateral damage to the broader global economy,” Roach acknowledged. “Once that engine screeched to a standstill, the rest of the world tumbled like dominoes, first non-Japan Asia, America’s NAFTA partners and now Europe and Latin America.” The NJA region as a whole is still expected to register the best economic performance in the world in both 2001 and 2002.
Globalization has increased the sensitivity of many NJA region economies to the state of U.S. business activity. However, what seems like painful vulnerability during the current U.S. downturn, should transform into a major growth stimulus when the U.S. economy turns upwards again.