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Terrorist attacks prompt U-turn on V-shaped recovery

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Morgan Stanley chief economist and chief bear Stephen Roach has made a living in recent years predicting rain.

As recently as September 24, he wrote to clients that 'we do not expect the [United States] and the broader world economy to experience a sharp, V-shaped rebound from this deep recession'.

That was then, though, and now Mr Roach appears to see some light at the end of the tunnel.

Prefacing his argument on economist John Maynard Keynes' famed retort to one of his critics: 'When the facts change, I change my mind. What do you do sir?', Mr Roach still wrote to clients on Monday that while the US economy was headed for a deep and sustained recession before September 11, the terrorist attacks had instituted 'a new set of circumstances which changes the macro call'.

'The modern day history of the US business cycle makes it quite clear that deep recessions are invariably followed by vigorous upturns,' he said.

'Needless to say, that's the silver lining of the glorious V-shaped business cycle.'

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