Former bear turns bullish on global economy

Is this the final bear capitulation phase ?

The world economy may be able to unwind its current imbalances without serious disruption, Stephen Roach, Morgan Stanley’s famously bearish chief economist, predicted on Monday, in a remarkable revision to several years of gloomy prognosis.

Mr Roach had long warned that the US current account deficit and Asian central banks’ ballooning currency reserves risked destabilising the global financial system.

But on Monday, in a note to clients, he said: “I must confess that I am now feeling better about the prognosis for the world economy for the first time in ages.” His comments came as the dollar hit a one-year low against the euro and seven-month low against the yen, as investors remained confident the US Federal Reserve was nearing the end of its interest-rate-tightening cycle.

Mr Roach said the tipping point had been last month’s decision to mandate the International Monetary Fund to begin multilateral discussions with the aim of resolving the largest trade imbalances. At the same series of meetings, the Group of Seven highlighted the need to address the imbalances, underlining policymakers’ apparent resolve.

You can read the full note here.