The financial media has put much of its focus recently on how close the credit crisis is to the finish line.
Not so fast, says Stephen Roach, chairman of Morgan Stanley Asia.
While "credit market contagion is maybe two-thirds behind us, the impact on the U.S. and global economies is at an early stage," he tells Bloomberg TV.
The bursting of the housing and credit bubbles and the surge in oil prices have just started to dent U.S. consumers, Roach says.
"For the U.S. consumer, where a record 72 percent of GDP was going to personal consumption last year, that share has to come down," he argues.
"As it does, the production of global economies will weaken. We are in the early stages of a downturn in the U.S. and global business cycle. It could be a multi-year adjustment for U.S. consumers."
The weakness in U.S. consumption and the negative impact that weakness will have on the rest of the world's economies will be the big global economic story for the rest of the year, Roach says.
The Federal Reserve's most recent report on economic conditions, known as the Beige Book, backs up Roach's view.
"Consumer spending was reported to be slow in most districts, with purchasing concentrated on necessary items and retrenchment in discretionary spending," the report says.
This bad economic news will shift the bear market in stocks away from the financial sector and into non-financial sectors, Roach says.
"I think the market trades sideways to lower through early 2009 and possibly longer," he says.
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