U.S. consumers, hobbled by debt and high unemployment, have been deleveraging, a process that will take another 3 to 5 years, Stephen Roach, Morgan Stanley’s non-executive chairman and the author of The Next Asia told CNBC on Tuesday.
According to Roach, American consumers, whose buying habits account for 70 percent of America's gross domestic product (GDP), had effectively become "zombies" after the financial crisis.
"In the last 13 quarters since the first quarter of 2008, consumer spending growth in the United States has grown an average annual rate of 0.5 percent. Never before has the American consumer...been this weak for this long," he said. "So something big is going on post-crisis and that's why I refer to them as the zombie generation."
Roach said Asia's 3.5 billion consumers were needed to make up the shortfall in demand from the U.S.
That's going to involve a huge shift because Asia's economic growth has been largely underpinned by a booming export sector. In fact, as Roach acknowledged in a report, internal private consumption in Asia has fallen to a low of 45 percent of GDP, down 10 percentage points from 55 percent of GDP back in 2002. In China, the situation is much worse, with consumption making up just 35 percent of GDP in 2008.
But Roach believes the Asian consumer can pick up the spending slack and he's encouraged by China's latest five-year plan.
"I think [it's] a great start in the direction of getting the Chinese consumer going and I encourage all of you to take a look at what they're proposing in terms of job growth, boosting wages and building up the safety net," Roach said. "Over the next 5 years you're going to see a powerful impetus from the Chinese consumer, allowing export-led China to wean itself from the zombie American consumer."
Roach expects China’s private consumption as a share of GDP to rise as much as 5 percentage points between now and 2015, and that, he says, will be especially good news for the East Asian economies of South Korea, Taiwan and Japan, which export goods to China.