Economist Nouriel Roubini, nicknamed “Dr Doom” for his gloomy predictions in the run-up to the financial meltdown four years ago, says the fallout from that crisis could last the rest of this decade.
Roubini, widely acknowledged to have predicted the crash of 2008, sees tough times ahead for the global economy and is warning that without major policy changes things can still get much worse.
Until Europe radically reforms itself and the US gets serious about its own debt, he said, the world economy will continue to stumble along to the detriment of large chunks of the world’s population who will continue to see their living standards under pressure, even if they have a job.
Roubini, a professor of economics and international business at New York University, spoke with Reuters in an interview this week on the sidelines of the World Economic Forum.
Looking at economic prospects this year, he agreed with the IMF’s latest forecast that the global economy is weakening and said he might be “even slightly more bearish” on its prediction of 3.3 percent growth this year.
He painted a grim picture of the eurozone in recession and key emerging markets in China, India, Brazil and South Africa slowing down, partly related to weakness in the eurozone.
He predicted that the US economy, the world’s largest, will grow by just 1.7 to 1.8 percent this year, with unemployment remaining high.
The government, he added, was “kicking the can down the road” and not taking measures to increase productivity and competitiveness.
“We live in a world where there is still a huge amount of economic and financial fragility,” he said. “There is a huge amount of uncertainty — macro, financial, fiscal, sovereign, banking, regulatory, taxation — and there is also geopolitical and political and policy uncertainty.”
“There are lots of sources of uncertainty from the eurozone, from the Middle East, from the fact that the US is not tackling its own fiscal problem, from the fact that Chinese growth is unbalanced and unsustainable, relying too much on exports and fixed investments and high savings, and not enough on consumption,” Roubini said.
He said the biggest uncertainty is the possibility of a conflict with Iran over its nuclear program that involves Israel, the US, or both. That could lead oil prices now hovering at about US$100 a barrel to spike to US$150 a barrel, he said, and lead to a global recession.
Roubini said slow growth in advanced economies will likely lead to “a U-shaped recovery, rather than a typical V,” and it may last for another three to five years because of high debt.
“Once you have too much debt in the public and private sector, the painful process could last up to a decade, where economic growth remains weak and anemic and sub-par until we have cleaned up the balance sheet and invested in the things that make us more productive for the future,” he said.