Wednesday, October 20, 2010

Roubini: Growth to Slow to 1%, House Prices Still To Go Down, Severe Risk of Trade Wars

the New York University professor who predicted the global financial crisis, said slowing economic growth in advanced economies will eventually curtail the recovery in emerging markets.

Nouriel Roubini said yesterday in Kiev that U.S. economic growth may slow to 1% by the end of 2010  as fiscal stimulus becomes a fiscal drag and that a sluggish recovery in the U.S., western Europe and Japan will eventually slow growth in emerging markets.

“My base scenario is that we will have a slow, U-shaped recovery in the advanced economies, but still there is a probability of a double-dip recession, or near depression, as in Japan in the 1990s,”  “The recovery in advanced economies is still very tentative.”

1% = recession

“If growth is only 1 percent, it is going to feel like recession, though technically it will not be a recession,” “You don’t create private jobs, the budget deficit widens, house prices go down instead of stabilizing.”

Roubini forecasted a V-shaped recovery for many parts of Asia and Latin America, including China, India and Brazil, but predicts growth in emerging markets to be weaker in the second half of 2010 and into 2011.

Roubini warned that the fundamental problems of Greece, Ireland, Italy, Portugal and Spain haven’t been resolved after Europe’s sovereign debt crisis. He says that the euro may strengthen against the dollar as the Federal Reserve eases monetary policy, potentially extending the recession in these countries..

“I am worried about the five countries on the periphery of the eurozone,” While there is a risk these countries may leave the eurozone, “I think the break up is less likely than restructuring of public debt,”

Trade Wars

He also warned that there is a danger of trade wars breaking out as countries weaken their currencies to stimulate exports.

“We are in a world where everybody wants to grow” “The risk of trade war is severe in relations between the U.S. and China.”

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