China’s economy is on the brink of recovery and a recession is inevitable, warned economist Stephen Roach.
“It is tempting to say that there will be a repeat of what we saw in 2020, when the economy fell by about 7% for the year, and four quarters later, it is rising by 18%,” said the former Morgan Stanley. Asian Friday Chair.
“But I think it’s unlikely that this will happen,” he told CNBC’s “Squawk Box Asia,” adding that the recovery process this time “will be very volatile.”
His comments came ahead of China’s disappointing second-quarter GDP release, showing the economy grew 0.4% in the April-June quarter from a year earlier.
Analysts polled by Reuters had forecast growth of 1% in the second quarter.
Roach, who is now dean of Yale University, said there could be a recession and a recession in the global economy “as central banks raise interest rates because of a much worse, weaker crisis than they thought.”
China may not see a “clean picture,” Roach said, as it bounced back from the first quarter to grow in the second quarter after the pandemic ends in 2020..
“We’re talking about different versions of Omicron that came back.”
Shanghai, China’s largest city by GDP, was closed in April and May. Beijing and other parts of the country have also imposed additional Covid restrictions to contain the spread of the new omicron BA.2 strain.
China: ‘Dangerous to other fears’
As for the economic potential in the second half of the year, Roach said it cannot be ruled out for any economy in the world.
“China is, in many ways, like any other economy. When you have a weak recovery, you lack a cushion to help you deal with the risks ahead,” he said.
“So China is going to have a very small problem so it’s going to be at some risk. It could be some shutdown. It could be, some of a number of things that we can’t think of.”
He added that “the economic viability or recovery of any economy – including China – cannot be defeated by the climate that seems likely to prevail.”
But unlike other major economies, China does not have a problem with inflation, Roach added.
“The CPI is up a bit but it’s the envy of any other economy… [China] he obviously has more points to use than he chooses to.”
Earlier this week, China’s central bank said it was closely monitoring the pace of economic growth abroad, but it did not signal a major change in interest rates at home.
“But what we learned from Japan – and China knows this very well – is that when you have control, and China has a lot, that’s the ability of policymakers … Road said.