Professor Nouriel Roubini from the Stern School of Business at the New York University gave a special lecture on the prospects of the global economy on October 14th during the 11th World Knowledge Forum.
Roubini projected a different path of recovery for advanced and emerging countries. Advanced countries will have a ‘U-shaped’ recovery, and “the risk of a double-dip recession is still significant in the US, Euro zone, and even in Japan,” he warned. Meanwhile, “recovery in emerging markets will most likely be shaped like a ‘V,’ with rapid return to high economic growth.”
In line with his reputation as Dr. Doom, Roubini predicted a painful, long-term de-leveraging in advanced countries. “By the end of this year, in the fourth quarter, economic growth in the US could be as low as 1%,” he predicted. “This is technically, not a double-dip recession, but the growth rate is so low that it will feel like a recession.”
Roubini also argued that the growth in the first half was driven by “tail winds,” consisting of built-up inventories, fiscal stimulus, tax breaks, and other factors that accelerated growth. However, these temporary measures will expire, and “all these tails winds to economic growth will become headwinds, slowing down economic growth in the second half of the year and well into 2011.”
Roubini carried on his criticism on the US policy of quantitative easing, which would produce limited results in an economy with an already low growth rate. He also predicted an ‘L-shaped growth’ for European countries of Spain, Greece, and Italy, while forecasting turbulence in Japan due to its aging population, political stalemate, end of the yen-carry trade, and a rising yen.
He saw higher growth for countries like Korea and China that depend on high technology products and exports, but offered a word of caution. “There is a risk of a double-dip for advanced countries. And if that were to happen, re-coupling would occur for emerging market economies,” he said.
“The most sound advice I can give to Korea and other emerging markets is to try to invest in the future, in human capital and physical capital, to increase productivity growth in the long run,” was Roubini’s final advice as he wrapped up his lecture. According to Roubini, a financially sound system and low debt and leverage in the private and public sector will bring more resilience, “and the more you’re resilient, the more you’ll be able to navigate these bouncy waves of global economy with less damage to your own economy.”
[Written by So-ah Lee - Samji Chung, edited by Soyoung Chung]