Second Pandemic Wave Threatens to Push Economy into Double-Dip Recession, Decimate US Dollar: Stephen Roach

Although positive vaccine news are pushing markets to historically high gains, the US economy is still at a very volatile stage, with the US dollar likely to be dealt even further detrimental blows.

According to former Morgan Stanley chief economist Stephen Roach, the surge in daily coronavirus infections across the US, which have been exceeding the 100,000 mark for 28 consecutive days now, will ultimately end up leading to further lockdowns. Albeit restrictions will be less severe this time around relative to March and April, they will still have a profound effect on the entirety of the US economy. Speaking to CNBC, Roach predicts that the first quarter 2021 is bound to see a temporary relapse in the economy, given that similar relapses have occurred in eight of the eleven past business cycles – with the current recession not being an exception to the rule.

Roach noted that such relapses suggest that an elevated vulnerability of a continued recession exist, along with an increased likelihood of aftershocks. The economist pointed out that although the economy has made a record rebound from the record-steep drop, the recovery thus far has only been technical, given that the integral services sector still has a long way to go before it is on track. Thus, he forecasts that the US economy will still contract by at least 1% in the first quarter of next year, coinciding with similar predictions made JPMorgan analysts.

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Lastly, Roach also touched base on his dismal forecast regarding the fate of the US dollar, which he anticipates will decline by more than 30% by the end of 2021. Since the onset of the pandemic back in March decimated global markets, the Dollar Currency Index, which measures the value of the US dollar relative to a basket of various currencies, has dropped by 10%. As a result, Roach predicts that the impeding US dollar collapse is likely going to be driven by an extensive account deficit, with pressure on the greenback currently only in the beginning stages.

Information for this briefing was found via CNBC. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.