Abu Dhabi, UAESaturday 20 July 2019

Roubini: seven reasons why the global economy could improve this year

The NYU economist famous for predicting the financial crash says the major risks behind a possible recession seem to have subsided

Professor Nouriel Roubini, co-founder of Roubini Global Economics, is upbeat about global economy. Bloomberg
Professor Nouriel Roubini, co-founder of Roubini Global Economics, is upbeat about global economy. Bloomberg

Bahrain//There are seven reasons why the global economy will continue to grow this year and not slip into a recession, according to Professor Nouriel Roubini, one of the world’s leading economists.

First, growth in China has stabilised, second the chances of a trade war between Beijing and Washington have receded and third, there will now not be a "hard Brexit" between the UK and Europe.

Also, the US is likely to negotiate with major car exporting countries and not introduce tariffs on their vehicle imports. Fifth, leading central banks, including the Federal Reserve, have paused their interest rate hikes. Sixth, stock markets have started to rally after a difficult period at the end of last year. Finally, the risk of domestic instability in America as a result of any volatile behaviour from President Donald Trump is contained, Prof Roubini said.

“In all these dimensions, [if I had to say] how, depending on these factors, things can really go bad or can improve, I would say marginally improve. Still new mediocre, synchronised global slowdown, not a great global economy but, hey, as long as we can avoid a crash or recession, it is good enough, right? I would take that,” he told The National on the sidelines of Mediaquest’s Top CEO forum in Bahrain on Thursday.

The professor of economics at NYU’s Stern School of Business – he is also chief executive of Roubini Macro Associates – became famous after his prediction of the financial crisis, several years before it happened, turned out to be correct. For this, he has sometimes been referred to as "Dr Doom" in the media. However, he is currently not making any gloomy forecasts.

Even if, this week, the IMF revised its expectations for economic growth this year lower, to 3.3 per cent, on a slowdown in China and trade tensions.

Having been to China recently, there is some “good news”, Prof Roubini said.

“I’ve just spent a week there, they’ve done another stimulus, growth is going to stabilise. So all in all, China is not a source of additional concerns. I was just in London, for three days, you know in Europe they were about ‘hard Brexit’. I know one thing for sure, there will not be a hard Brexit. Whether ‘soft Brexit’ or reversal [on leaving Europe] or second referendum, we don’t know. But neither side can afford something that is going to lead to a trade shock, a business confidence shock, financial market shock, so that’s good news for Europe and the world.”

Equally, US policies are not going to be a major source of global volatility, he said. Financial markets dismiss Mr Trump’s tweets as just “noise” and while his actual policies “are not great they’re not totally disastrous”, Prof Roubini said.

“Until the election, my view is, he wants a stable economy, he wants a dovish Fed. He wants a stable stock market, he doesn’t want massive trade wars. He’s not even going to do another government shutdown. He’s going to make noises about migration and the border but he’s not going to shut down the border. So, you know, he can talk and bark but as long as he barks and he doesn’t bite, the US is sort of growing 2 per cent. That’s good enough. So the Trump risk is also contained.”

Prof Roubini is in favour of technological innovation and globalisation but “we forgot that there are winners and there are also some losers”.

“The losers become a bigger number, they are getting noisy, they’re getting politically organised and they are saying ‘we are getting left behind and that is not acceptable’.”

As a result, inequality – both of income and wealth – is the key issue that governments in both advanced economies and emerging markets will have to address in the coming decades “otherwise you will have revolution”.

“Growth has to be inclusive, if it is not inclusive it is going to lead to instability. There isn’t a simple answer but even billionaires all over the US are saying ‘either we address the ills of Wild West capitalism or otherwise we will have instability,' so there is an awareness. This is a starting point.”

The urgency of this task is highlighted by the heightened antagonism towards migrants and minorities across the world, amid the rise of populism. If more economic opportunity is not created soon then these “ugly feelings” will spill over, Prof Roubini said.

“It is unfortunate, hopefully it is going to remain contained, and these ugly forms of excessive nativism are not going to become dominant. If they become dominant it’s very dangerous.”

In emerging markets, the outlook is also broadly – if cautiously – optimistic, he said.

“If the US, Europe and Japan, the advanced economies, are fine, emerging markets, economically, are also fine. There are political uncertainties in many countries in the world, that’s true. Emerging markets to me look reasonably stable."

In India, where voters started to go to the polls today in nationwide elections, it is likely the Prime Minister Narendra Modi will win again.

“Even if he were to lose, it is not like the other side is going to radically change the economic policy,” Prof Roubini said.

He said that the countries to be wary of were ones which had economic and policy uncertainty, such as Turkey.

“Medium term, Turkey can be a success story. Argentina has serious economic difficulties. Brazil and Russia in the last two years were weak but now look like they are recovering.

"All in all, I would say compared to some of the political dysfunctionality in some advanced economies; gridlock we have in the US, the UK, some of the populists that are in power in Europe, the average emerging market, it’s ok, with some exceptions.”

Updated: April 17, 2019 02:54 PM

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