Economist Nouriel Roubini is standing by his prediction for a global “perfect storm” next year as economies the world over slow down or shudder to a complete halt, geopolitical risk grows and the eurozone’s debt crisis accelerates.
Roubini, the New York University professor dubbed “Dr Doom” for predicting the 2008 financial crisis, highlighted five factors that could derail the global economy.
Those factors are a worsening of the debt crisis in Europe; tax increases and spending cuts in US that may push the world’s biggest economy into recession; a hard landing for China’s economy; further slowing in emerging markets and a military confrontation with Iran.
“Next year is the time when the can becomes too big to kick it down [the road] ... then we have a global perfect storm,” Roubini said in a television interview with Reuters.
Roubini’s gloomy outlook for next year isn’t new, but it’s getting more purchase as slowing economies and Europe’s debt crisis drive turbulence in financial markets.
After what he expects will be a flat year for US stocks this year, Roubini said the equity market could face a sharp correction next year, with little the US Federal Reserve can do to stop it.
“There might be a weak rally because people are being cheered by more quantitative easing by [Chairman Ben] Bernanke and the Fed, but if the economy is weakening, that is going to put downward pressure on earnings growth,” Roubini said.
Roubini said the Federal Reserve might be pushed toward unconventional policy options as the stimulative effect of successive waves of quantitative easing — effectively printing money to buy government bonds — diminishes over time.
Unconventional policy could include “targeting the 10-year Treasury at 1 percent, doing credit easing rather than quantitative easing, targeting nominal GDP, price-level targeting and lots of stuff that is more esoteric,” Roubini said. “Eventually if everything goes wrong, they can even buy equities.”