Source: Bloomberg.com

The global economic downturn has only just begun, with the U.S. near a “recession trajectory” and the impact of the credit crunch still to be fully felt, said Stephen Roach, Morgan Stanley’s Asia chairman.

“There’s more to this macro event than just the credit- market contagion itself,” Roach said in an interview with Bloomberg Television in New York today. “Maybe two thirds of that is behind us, but the impacts on the real side of the U.S. economy and the global economy are at an early stage.”

Expansion in the U.S., the world’s largest economy, is likely to weaken in the in the second half after a stronger-than-expected second quarter as consumers rein in spending. That will slow European and Asian exports and hamper global growth, Roach said.

“We’re in the early stages of the downturn in the U.S. and global business cycle,” he said. “As the U.S. consumer goes into post-bubble funk, Asian exporters will feel it. That’s certainly evident now in China and its spreading through developing Asia.”

As the world economy cools, the dollar may continue to rise and commodities such as oil and base metals may decline, he said. Equity markets will trade “sideways to lower” until at least early 2009.

“Investors, especially in equities, have to be wary about being too optimistic on the earnings implications of what could be a long and drawn out multi-year adjustment for the U.S. consumer,” Roach said.

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