A Not-So Happy New Year: Global Gloom and Doom from Nouriel Roubini

In his latest update of the global economic view, Nouriel Roubini clearly retains his moniker “Dr. Doom.” In short, Roubini offers up another batch of grim worldwide economic predictions for the coming year. But since Roubini has been on the money with many of his predictions over the past five years, it may be beneficial to hear the view from the leader of the bear camp. So, let’s take a look at the highlights of Mr. Roubini’s latest global economic outlook.

Dr. Roubini starts with his outlook for the troubled Eurozone economy. Roubini says that while the size and scope has yet-to-be determined a Eurozone recession is inevitable. Roubini cites an ongoing credit crunch, massive sovereign-debt, a move toward fiscal austerity across the region, and a disappearing drive and competitive spirit as factors for what he expects to be a serious downturn.

Closer to home in America, Roubini opines that growth has been stagnant for the last two years, partially due to negative fallout from the chaos in Europe. Currently, the U.S. also struggles with fiscal friction, poor job growth, static earnings, and pressure on real estate and financial wealth. Roubini says that all of the above will result in an ongoing deleveraging process – especially in the housing market. Furthermore, with inequality increasing and the nation’s political gridlock, economic progress appears unlikely. However, Roubini does note that the high-grade corporate sector is showing signs of improvement.

Across the pond, the not-so optimistic economists says UK is already in the process of “double dipping” into recession, as front-loaded fiscal consolidation and exposure to the Eurozone’s crisis will hinder the country’s prospects for growth.

In the eastern world, Roubini’s outlook is also less than optimistic. He sees a steep deceleration in China and many emerging markets, given that all Asian economies are directly exposed to China. Some of the difficulty in China can be attributed to falling U.S. and Eurozone demand. But flaws in the economic structure of many emerging markets have become increasingly evident as various sectors of the market decelerate alongside China. Roubini feels that Chinese officials will be hard pressed to find an easy solution to the slowdown. However, he notes that the Chinese are attempting to ease the property pains by reining in access to loans on property purchases.

Elsewhere in the Pacific, post-tragedy Japan still struggles, as Roubini feels that the Japanese government seems incapable of implementing structural reforms. Similarly, the U.S. and Europe have avoided serious reforms necessary to refurbish balanced, consistent and sustainable expansion.

Meanwhile, Central and Eastern Europe are also concerned with the crashing Eurozone, while commotion in the Middle East is resulting in the ongoing economic threat of high oil prices hindering growth around the globe.

Roubini also touched on the lack of job growth during the current U.S. recovery. He says that with several relentless risks worldwide weighing heavily on morale and with excess capacity still at a noticeably high level thanks to high real estate investments in the past as well as China’s recent investments in manufacturing, high-grade corporate sector companies’ spending and hiring have been low-key.

Next, Roubini gave a nod to the Occupy Wall Street crowd by recognizing that inequality has risen moderately due to corporate. This global disparity in the social classes often stimulates widely accepted objection; the socio-political volatility potentially furthering jeopardizing the economy. Furthermore, the overall effect may only further diminish aggregate demand, as mid-low socio-economic households and labor-income families and individuals maintain a higher proclivity to spend than large corporations, the wealthy and capital-income earners.

Trouble is, Roubini offers, policymakers are nearly out of options. Currency devaluation has little-no benefit, as countries can’t all play the devaluation game in order to improve their net exports simultaneously. Roubini feels that monetary policy will continue to ease on a global scale as inflation pressures ease, especially in emerging economies.

On the subject of the Eurozone sovereign debt crisis, Roubini says that with no foreseeable resolution, bond hawks and strict fiscal rules will continue to restrict economic progress. Neither the governments nor the public in the financially credible nations (aka Germany) are particularly enthralled with the idea of bailing out struggling institutions or nations. Roubini also says that the weakness seen in some of the EU administrations as well as conflicting goals and ideologies of the various countries have combined to restrict the ability to develop a coordinated solution to the problem.

So what does all this negativity ultimately mean? According to Roubini, the bottom line is that global economic growth is likely to decline further in the coming year. Addressing the very long laundry list of problems offered in his analysis, Roubini says that currency adjustments will be necessary, solvency issues will emerge in EU banks, and we might even see some Eurozone exits.

Roubini says in sum that restoring the fragile and unbalanced global economy should be quite a task to take on for 2012!

 

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