Post by jeffolie on Jan 22, 2013 11:55:47 GMT -6
Economist Roubini: Spreading Austerity to Hobble World Growth
21 Jan 2013
Fiscal austerity will envelop most of the world in 2013, leading to mediocre growth and even outright contraction in some countries, predicts economist Nouriel Roubini.
Fiscal austerity is spreading to the eurozone's core, the U.S. and other advanced economies, writes Roubini in an article for Project Syndicate, a website posting commentary from economic and political leaders.
Substantial economic and political risks abound this year, warns Roubini, an economics professor at New York University and chairman of Roubini Global Economics. Although the chance of all the risks materializing at once is low, any one is enough to prompt a global recession.
For one thing, another ugly political fight over the debt ceiling and government spending could spook financial markets, writes Roubini, known as "Dr. Doom" for his pessimistic forecasts. "And even the current mini-deal implies a significant amount of drag – about 1.4% of GDP – on an economy that has grown at barely a 2% rate over the last few quarters."
Roubini sees global growth averaging about 3 percent, with subpar growth of less than 3 percent in advanced countries and 5 percent growth in emerging markets.
"The entire greater Middle East – from the Maghreb to Afghanistan and Pakistan – is socially, economically, and politically unstable," Roubini writes. "Indeed, the Arab Spring is turning into an Arab Winter."
Although an outright war with Iran is unlikely, a fear premium could prompt a 20 percent jump in oil prices and negative growth worldwide.
For Europe, Roubini sees stagnation and outright recession, low productivity growth, and large and potentially unsustainable private and public debt.
The European Central Bank has reduced risks but has solved the euro zone's fundamental problems, he writes, warning that problems "will re-emerge with full force in the second half of the year."
The risk of a hard landing in China will increase by the end of the year.
The country has relied on stimulus to prop up "an unbalanced and unsustainable growth model based on excessive exports and fixed investment, high saving, and low consumption."
Unfortunately, the conservative Chinese leadership will probably speed up reforms needed to increase incomes, reduce savings, and increase consumption.
Growth is slowing in many emerging markets. Their main problem is their "state capitalism," marked by large state-owned companies and financial protectionism, and it's uncertain if they will embrace reform.
Roubini has not always been right. He incorrectly predicted that Greece would leave the eurozone. Like many, he underestimated European leaders' willingness to save the euro and the Greeks resolve to accept austerity.
"People underestimated these factors,” Roubini told Bloomberg, adding that a Greek exit is “is certainly a less likely event this year, although not a zero probability.”
He now puts the odds of Greece leaving the euro at 30 percent in 2013 and at more than 50 percent in three to five years, according to Bloomberg.
www.moneynews.com/StreetTalk/Economist-Roubini-Austerity-Growth/2013/01/21/id/472313?s=al&promo_code=121EC-1
21 Jan 2013
Fiscal austerity will envelop most of the world in 2013, leading to mediocre growth and even outright contraction in some countries, predicts economist Nouriel Roubini.
Fiscal austerity is spreading to the eurozone's core, the U.S. and other advanced economies, writes Roubini in an article for Project Syndicate, a website posting commentary from economic and political leaders.
Substantial economic and political risks abound this year, warns Roubini, an economics professor at New York University and chairman of Roubini Global Economics. Although the chance of all the risks materializing at once is low, any one is enough to prompt a global recession.
For one thing, another ugly political fight over the debt ceiling and government spending could spook financial markets, writes Roubini, known as "Dr. Doom" for his pessimistic forecasts. "And even the current mini-deal implies a significant amount of drag – about 1.4% of GDP – on an economy that has grown at barely a 2% rate over the last few quarters."
Roubini sees global growth averaging about 3 percent, with subpar growth of less than 3 percent in advanced countries and 5 percent growth in emerging markets.
"The entire greater Middle East – from the Maghreb to Afghanistan and Pakistan – is socially, economically, and politically unstable," Roubini writes. "Indeed, the Arab Spring is turning into an Arab Winter."
Although an outright war with Iran is unlikely, a fear premium could prompt a 20 percent jump in oil prices and negative growth worldwide.
For Europe, Roubini sees stagnation and outright recession, low productivity growth, and large and potentially unsustainable private and public debt.
The European Central Bank has reduced risks but has solved the euro zone's fundamental problems, he writes, warning that problems "will re-emerge with full force in the second half of the year."
The risk of a hard landing in China will increase by the end of the year.
The country has relied on stimulus to prop up "an unbalanced and unsustainable growth model based on excessive exports and fixed investment, high saving, and low consumption."
Unfortunately, the conservative Chinese leadership will probably speed up reforms needed to increase incomes, reduce savings, and increase consumption.
Growth is slowing in many emerging markets. Their main problem is their "state capitalism," marked by large state-owned companies and financial protectionism, and it's uncertain if they will embrace reform.
Roubini has not always been right. He incorrectly predicted that Greece would leave the eurozone. Like many, he underestimated European leaders' willingness to save the euro and the Greeks resolve to accept austerity.
"People underestimated these factors,” Roubini told Bloomberg, adding that a Greek exit is “is certainly a less likely event this year, although not a zero probability.”
He now puts the odds of Greece leaving the euro at 30 percent in 2013 and at more than 50 percent in three to five years, according to Bloomberg.
www.moneynews.com/StreetTalk/Economist-Roubini-Austerity-Growth/2013/01/21/id/472313?s=al&promo_code=121EC-1