‘Substantial’ scars will limit pent-up consumer demand: Stephen Roach

Economist Stephen Roach said Monday he believes Wall Street overestimates a return of consumers.

According to the senior colleague of Yale University, demand will rebound like a rubber band later this year as the V-shaped recovery loses momentum.

“With vaccines rushing along with a lot of stimulus, you can feel this instant gratification of a long-delayed pent-up question,” Roach told OilGasJobz’s “Trading Nation.” “But if I look at the numbers, you know, most of the upswing has probably already taken place.”

It builds part of its business on the share of consumers’ sustainable consumption in GDP.

“We are back at the level of sustainable consumers that we have not had for about 13, 14 years,” Roach said. “We have done the pent-up demand to a large extent and it looks like it is borrowing from growth that would otherwise take place in the second half of this year or early in 2022.”

Roach said he does not believe that as more people are vaccinated, they will no longer spend on furniture and cars, but also on restaurants and theaters.

“These face-to-face activities are still lagging behind in terms of work and demand,” he said. “Even as we get vaccines, I think long-term lesions are going to happen here in the long run. … I fear for quarters if not years.”

If pent-up demand starts to plummet, Roach says, he expects inflation fears to subside.

“The gap between supply and demand is going to prevent a significant and sharp increase in inflation,” he said, suggesting that the 10-year treasury yield would fall lower.

Roach, who served as chairman of Morgan Stanley Asia during the deadly SARS epidemic in 2003, also sees the weakening in the world economy along with the supply chain and technological breakthroughs limiting higher prices.

Despite his optimistic call for inflation, he continues to question the strength of the US recovery. He considers the latest stimulus package to be a temporary measure because the relief tests do not support the organic growth of the ongoing income.

“It’s going to be very difficult to sustain this V-shaped track that many have relied on,” Roach said.

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