Oil prices are 65 per cent above the average that prevailed over the preceding four years. If oil holds at $50 per barrel for over a month or two, that will qualify as a formal oil shock which has a significant recessionary risk for 2005, managing director of Morgan Stanley, Stephen Roach said.
"The global economy is moving into the danger zone, reflecting the culmination of imbalances and an oil shock. Should anything untoward happens in early 2005, I have little doubt, it will tip into outright recession in the US and again on the US-centric economies," he added.
The top American economist also warned China, Japan and other Asian economies to brace themselves for possible severe trade friction with the United States due to large American trade deficits and pressure from restive labour unions.
"I do believe that the risk of protectionism will rise, largely because the Bush administration refuses to accept its responsibility in pushing down US savings through its reckless fiscal policy," he said while urging the Bush administration not to implement the deep tax cut he plans to effect during his second term in office as US president.
"That is an early sign for Asia in general, and you in China in particular to prepare for the likelihood that trade frictions could intensify, in large part because of actions taking place in Washington than in Beijing," Roach said.
He said China is increasingly becoming a favourite target of criticism by US politicians for the economic misdeeds of Washington.
Japan was the scapegoat in the 1980s. China is at the top of the list of being a scapegoat today, he said. Roach also showered praise on the Chinese government for taking bold micro and macro economic steps to cool down the overheated economy.
"China's soft landing is good news for an unbalanced global economy," he said. "It's important progress for the world on the road to global rebalancing."
From July to September, China's economy grew 9.1 per cent compared with a year earlier, after registering 9.8 per cent in the first quarter (January-March) and 9.6 percent in the second quarter (April-June).
