The United States economy could face the twin evils of deflation and renewed recession as globalisation drives prices lower for both goods and services, Morgan Stanley chief economist Stephen Roach has warned. The well-known bear also said that as the world remained dependent on the US for much of its demand, disruptions in North America would have a knock-on effect in Europe and Asia. 'Courtesy of what I think are unmistakable signs of the globalisation of services, there is a new pricing dynamic at work in both goods and services that could well take the US into deflation within 12 to 18 months. Mr Roach told an investors conference in Singapore yesterday. He added: 'America is going to be very sluggish in terms of economic growth for the next couple of years at a minimum, and so sluggish that if a periodic shock comes along, that shock will tip the US into a recessionary relapse. This is the dreaded double-dip.' He cited higher energy costs after a US military assault on Iraq; a surge in white-collar redundancies in the US, and a collapse in US property prices as three possible shocks in the coming years. Mr Roach said his gloomy analysis was based on two factors: the US economy had yet to unwind fully the excesses of the 1990s; meanwhile overseas, economic integration was driving prices lower. 'The first layer to go was Nasdaq, then the [information technology] layer, then telecoms. We have still got, in my opinion, three more layers of this onion to peel: the dollar bubble, the property bubble and the biggest bubble of them all, the American consumer.' With prices for goods already falling 0.6 per cent a year, services inflation of 2.2 per cent was all that was preventing the onset of deflation, he said. 'Normally services inflation does not budge over the course of the business cycle; this time it has declined by 0.8 percentage point, a swing of one full percentage point from the cyclical norm of the past. In other words, the cushion we had from services is getting thinner and thinner.' he said.