US close to 50-50 chance of recession Kevin Andrusiak December 07, 2006 RENOWNED US economist Stephen Roach believes the US economy will slow to a near "stall speed" next year and stands a 40 to 45 per cent chance of tipping into recession because of its weakening housing market as Chinese regulators look to curtail economic growth. The Morgan Stanley chief economist and director of global economic analysis also had some dire news for subscribers to the resources boom, saying commodity prices were "overdone". "Bleak is not the way I would describe the rest of the world, except for the US," Mr Roach said in Sydney yesterday. The gloomy outlook came on a day when more economic indicators showed Australian economic growth was moving at a snail's pace. Yesterday, economic growth came in at 0.3 per cent for the September quarter, less than analysts were expecting and giving an annual growth rate of 2.2 per cent. Treasurer Peter Costello is tipping growth to "remain modest" as the effects of the drought filter through to the economy. "The first thing you hear when you land in the US is the air coming out of the housing market," Mr Roach said. "If China and the US slow, don't expect the rest of the world to fill the void." He said the cooling market would then flow through to other sectors in the US economy and slash between 2 per cent and 2.5 per cent from economic growth in 2007, which currently stood at around 3 per cent. "It's not quite a recession, but what we call a growth recession," Mr Roach said. "It is dangerously close to what we call stall speed. The odds of the US economy tipping into recession are about 40 to 45 per cent." The two economies of the US and China have collectively accounted for about two-thirds of global gross domestic product in recent times. Weaker retail figures in the US and a downturn in leading confidence measures point to a slump for the US economy heading into 2007. And US economists were not believing the rhetoric coming from the US Federal Reserve. Mr Roach said the US Fed might have to start dropping interest rates by March, especially if the economy looked like tipping into a recession. "(Federal Reserve chairman) Ben Bernanke talks about resilience in capital spending and he is wrong," Mr Roach said. Mr Roach predicted the Chinese economy, the fourth-largest in the world, would also slow from its double-digit growth because of a slowdown in government spending and weaker export sales to the US as it aimed for more "quality" in economic growth rather than quantity. "There is a trade off between the quantity and the quality dimensions of the Chinese growth experience," Mr Roach said. "As a 10 per cent growth machine, that's a luxury China can well afford and seems willing to accept." However, Mr Roach was bullish on the economies of India, Japan and Germany.