Stephen Roach says China is set for a weak rebound and a recession cannot be ruled out

• China may not see a "clean snapback," said economist Stephen Roach, where it bounced back from a first-quarter contraction to grow in the second quarter after the pandemic first hit in 2020.
• His comments come ahead of the release of China's second-quarter GDP results, which reported a growth of 0.4% in the second quarter from a year ago, missing expectations.
• As for the possibility of a recession in the second half of the year, Roach said it cannot be ruled out for any economy in the world, including China.

China's economy is set for a weak recovery and a recession cannot be ruled out, warned economist Stephen Roach.

"It's tempting to say that there'll be a repeat of what we saw in 2020, when the economy collapsed nearly 7% year-on-year rate, and four quarters later, was soaring at 18%," said the former Morgan Stanley Asia chairman on Friday.

"But I think it's unlikely that that will be the case," he told CNBC's "Squawk Box Asia," adding that the recovery trajectory this time will be "far more muted."

His comments came ahead of China's second-quarter GDP release which missed expectations, and showed the economy grew 0.4% in the April to June quarter compared to a year ago.

Analysts polled by Reuters had forecast growth of 1% in the second quarter.

China is going to have a weak rebound and so it will remain vulnerable to another shock.

Stephen Roach

Senior fellow, Yale University

Roach, now a senior fellow at Yale University, said there could be more monetary tightening and downward pressure on the global economy "as central banks raise interest rates in response to a much worse, more intractable inflation problem than had been envisioned."

China may not see a "clean snapback," said Roach, where it bounced back from a first-quarter contraction to grow in the second quarter after the pandemic first hit in 2020.

"We're talking about these various variants of Omicron which came reappearing."

Shanghai, China's largest city by GDP, was locked down in April and May. Beijing and other parts of the country also imposed some Covid restrictions to contain the spread of new omicron BA.2 variant. 

China: 'Vulnerable to another shock'

As for possibilities of a recession in the second half of the year, Roach said it cannot be ruled out for any economy in the world

"China is, in many respects, like any other economy. When you have a weak recovery, you lack the cushion that would enable you to withstand subsequent shocks," he said.

"So China is going to have a weak rebound and so it will remain vulnerable to another shock. It could be another lockdown. It could be, any one of a number of possibilities that we can't even imagine."

He added that "the possibility of recession or relapse for any economy — including China — cannot be overruled in the type of climate that seems most likely to prevail."

But unlike other major economies, China does not have an inflation problem, Roach added.

"The CPI has moved up just a tiny bit but it's the envy of any other major economy … So [China] obviously has more basis points to utilize than chooses to do so."

Earlier this week, China's central bank said that it is closely watching monetary policy tightening abroad, but did not signal major interest rate changes at home.

"But what we learned from Japan — and China knows this full well — is when you have structural headwinds, and China has plenty of those, then the ability of policymakers … to achieve traction and really boost the economy through policy stimulus is limited," Road said.