Nouriel Roubini, the economist whose dire forecasts earned him the nickname "Doctor Doom", told CNBC Monday that the economic recovery is going to be "very ugly."
When asked about the economy Monday, Roubini said, "We may be out of a freefall for the financial system," said Roubini. "We have seen the worst in that sense. But in my view there is a sluggish U shaped recovery that might go into a W double dip if we don't fix the problems in the economy."
The global recession may end towards the end of 2009 rather than sooner and the global recovery in 2010 will be anemic and well below trend as leveraged and income/profit-challenged households, firms and financial institutions are constrained in their ability to borrow, lend and spend. Meanwhile a perfect storm of persistently large fiscal deficits and public debt accumulation, monetization of such deficits that will eventually increase expected inflation, rising government bond yields, soaring oil prices, weak profits, still falling jobs and stagnant growth has inched a little closer on the radar of this cloudy global economic outlook. It’s a storm that could blow the recovering world economy back into a double-dip recession by late 2010 or 2011. It doesn’t have to come to pass. But it is getting more likely unless a clear exit strategy from the massive monetary and fiscal stimulus is outlined even before it is implemented once a more sustained global recovery is achieved.
On investing in today's markets: "A "Stay away from risky assets. I think from now on the surprise will be on the downside in areas like commodities."
Below is his interview.
So what is your forecast for the recovery right now? I've been hearing sub par growth. What exactly does that mean?
ROUBINI: First of all, in my view the recession is going to continue through the end of the year. It's not over yet, and while potential growth rate for the U.S. economy is 3 percent, I expect that the growth rate of the economy is going to be very anemic, below trend, then on 1 percent for the next two years. Why? You have U.S. consumers are shopped out, saving less debt burden. They're not going to consume very much. Your financial system is severely damaged, and credit growth is going to be limited, and now we have also this massive re-leveraging of the public sector with a large budget deficit and increases in public debt are going to eventually crowd out the economic recovery of the private sector. So I don't see a lot of economic growth ahead of us.
Are you worried at all about a double-dip recession?
ROUBINI: Yeah, the risk is that by the end of the next year, if budget deficit remains very large, around $1.5 trillion, and if the Fed keep on monetizing them, essentially printing money to try to prevent increases in interest rates, expect that the inflation is going to go up, and if expecting inflation were to go up, long-term government bond yields would go up, and mortgage rates will go up. Borrowing costs for consumers (INAUDIBLE) will go up, and that's going to crowd out the recovery, so there's even a risk of a double-dip recession.
If your economic projections are correct and I have to point out that they are below consensus, it would seem that the stock market may have gotten way ahead of itself here at the current levels. Do you agree with that?
ROUBINI: Yes. Some increase in stock prices are justified because we avoided the risk of a near depression. That was the risk we were facing in the first quarter. But markets have gone up too much, too soon based on economic fundamentals. If the recovery is going to be weaker, therefore profits are not going to recover as fast. If you are going to have still weaknesses in the rest of the world, Europe, Japan I think there will be downside risk for the stock market from this point on.
What would you expect those stronger signs to be? What do you look for?
ROUBINI: Well, we have to look whether there's going to be any stabilization of the job market, but unfortunately I see unemployment rate well above 10 percent this year and close to 11 percent at the peak next year. We have to see a recovery of the U.S. consumer, but there's a massive weakness because of consumers being hit by default (ph) in the equity wealth, in this housing wealth, falling labor income, rising debt and debt servicing ratio (ph). That's why I'm somehow bearish about the recovery and don't expect the recovery to occur anytime soon and that's going to be a negative for the markets.
Above transcripts are taken from Video Interviews listed below:
One more video interview: http://www.pbs.org/nbr/info/local-player.html?s=nbre07s2cf0q4c4
Read More in http://www.cnbc.com/id/32012679/site/14081545
Subscribe to:
Posts (Atom)