IFSA Conference – World catches USA
Countries catching up with the pace of America’s growth will continue to boost world growth, says Morgan Stanley Dean Witter chief economist Stephen Roach.
"The US model is shaping the world and the next three to five years will see other countries catching up, with Europe leading the way," he says.
The rest of the world wants the US technology growth, especially the Internet-driven advances, and the entreprenurism that is prevalent in that sector.
US fund managers are packaging venture capital investments for this sector, a move the rest of the world still has emulate, Roach says. Silicon Valley in California has become the heart of venture capital, but Roach sees this sector moving into mainland Europe and even the UK.
"The rest of the world will catch up with the US in the next five years regarding IT, productivity and earnings," he says.
While the richer nations will enjoy considerable growth due to technology, poorer nations will fall further behind, he predicts.
The growth of the new economy, driven by technology, must still remember the three basic investment rules, Roach says.
"Firstly, supply and demand; next all economies have speed limits and finally, business cycles/landings," he says.
Roach says there is no such thing as a soft landing and the current high growth rates of the US economy will slow.
"I see the global economy slowing to 4 per cent growth in 2001," Roach says.
"Europe will grow by 3 per cent and non-Japan Asia will grow by 7 per cent," he says.
Morgan Stanley is predicting between 3.5 and 4 per cent growth for Australia in 2001.
"The biggest risk to the Asian economy is Japan, due to its financial restructuring," Roach says. "Other risks are a hard landing in the next four years, central banks tightening monetary policy and the US equity bubble bursting - this being the biggest risk."
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