Economic Recovery? Still a Ways Away, Roubini Warns
- Jun 08, 2011
Is the economy recovering? Maybe. But Nouriel Roubini thinks we still have a ways to go. Speaking as the lunchtime keynote on Tuesday during REIT Week, the professor of economics at New York University’s Stern School of Business and chairman & founder of Roubini Global Economics warned, “There’s going to be a significant global economic slowdown in the next few quarters.”
That flies in the face of some predictions that the economy has just hit a “soft patch” and will see a stronger recovery in the second half of the year, he noted. And indeed, he does see a number of areas of improvement worldwide. But there are also plenty of risks out there that far outweigh the positives, according to his observations.
Among those risks: This recovery has been more “U” shaped rather than the typical “V” recovery, requiring a painful deleveraging to reduce debt that will take a number of years to achieve; indeed, U.S. economic growth has been minuscule, with 3.5 to 4 percent growth the best it is likely to achieve this year. Unemployment will remain too high as companies stay overly cautious in their spending , while the double-dipping housing sector is now performing worse than it did during the Great Depression. Already, it has lost more than 33 percent of its value, and it is likely to continue in that direction until it has lost more than 40 percent and almost half of all homeowners find themselves with negative equity.
Government performance at the federal, state and local levels also remains a problem, with political gridlock preventing progress at the federal level—a situation that is only expected to worsen as the next presidential election approaches.
Sovereign risk among other countries worldwide also presents a problem, with public debt that has been at 70 percent climbing to more than 100 percent and a number of countries already over that level. In a number of cases, recovering will be “mission impossible,” Roubini maintained, listing such countries as Greece, Portugal and Ireland. A bigger risk comes from the larger country of Spain, whose problems are not likely to be resolved anytime soon, while on the flip side many emerging markets are growing but too quickly, increasing risk for a hard landing.
Other risks come from the unpredictable oil sector, the many unknowns that remain as a result of the tsunami and earthquake in Japan and China’s over-reliance on exports. In fact, Roubini noted, more domestically focused countries such as Turkey, India, Brazil and Indonesia are better bets than China.
Countering these dire predictions are a number of factors that indicate the global economy is moving in the right direction, Roubini said. Broadly speaking, there is a global economic recovery taking place, with most economies’ GDPs above crisis level and “advancing” markets performing the best. Furthermore, risks have been reduced—as an example, instead of deflation, discussions center on potential for inflation.
In the financial sector, while many banks are still in trouble, the high-grade corporate sector is “lean and mean” and commercial real estate, unlike its single-family counterpart, has been recovering. And last year ended with a rally in the global capital markets.