Nouriel Roubini, a professor at NYU’s Stern School of Business, predicts dark times for the global economy in 2013 in his recent analysis of the events that occur around the world. The Chairman of Roubini Global Economics foresees dark financial and economic clouds, which are rolling in from every direction: the eurozone, the United States, China, and elsewhere. He believes that the global economy in 2013 could be a very difficult environment in which to find shelter.
In his opinion, the Eurozone crisis is worsening, as the euro remains too strong, front-loaded fiscal austerity deepens recession in many member countries, and a credit crunch in the periphery. To add to that, the high oil prices undermine prospects of recovery. Roubini believes that the eurozone banking system is becoming balkanized, as cross-border and interbank credit lines are cut off. Capital flight could turn into a full run on periphery banks if, as is likely, Greece stages a disorderly euro exit in the next few months.
There are also problems elsewhere too, thinks Roubini, as the US economic performance is weakening, with first-quarter growth a miserly 1.9% – well below potential. To add to that, the job creation faltered in April and May, so the US may reach stall speed by year end. Worse, the risk of a double-dip recession next year is rising: even if what looks like a looming US fiscal cliff turns out to be only a smaller source of drag, the likely increase in some taxes and reduction of some transfer payments will reduce growth in disposable income and consumption.
The professor sees fiscal and sovereign-debt strains to become worse as interest-rate spreads for Spain and Italy have returned to their unsustainable peak levels. Indeed, the eurozone may require not just an international bailout of banks, as recently in Spain, but also a full sovereign bailout at a time when eurozone and international firewalls are insufficient to the task of backstopping both Spain and Italy. As a result, disorderly breakup of the eurozone remains possible.
Back in the USA, political gridlock over fiscal adjustment is likely to persist, regardless of whether Barack Obama or Mitt Romney wins November’s presidential election. Thus, the professor Roubini believes, new fights on the debt ceiling, risks of a government shutdown, and rating downgrades could further depress consumer and business confidence, reducing spending and accelerating a flight to safety that would exacerbate the fall in stock markets.
Turning his view to East, and especially to China, Nouriel Roubini sees its growth model unsustainable. The professor shares his opinion that it could be underwater by 2013, as its investment bust continues and reforms intended to boost consumption are too little too late. A new Chinese leadership must accelerate structural reforms to reduce national savings and increase consumption’s share of GDP; but divisions within the leadership about the pace of reform, together with the likelihood of a bumpy political transition, suggest that reform will occur at a pace that simply is not fast enough.
The economic slowdown in the US, the eurozone, and China already implies a massive drag on growth in other emerging markets, thinks Nouriel Roubini, owing to their trade and financial links with the US and the European Union, and, in his opinion, that is, no "decoupling" has occurred. At the same time, the lack of structural reforms in emerging markets, together with their move towards greater state capitalism, is hampering growth and will reduce their resiliency.
Nouriel Roubini is an American economist, chairman of Roubini Global Economics, an economic consultancy firm. He also teaches at New York University's Stern School of Business.
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