A “perfect storm” of fiscal woes in the United States, a slowdown in China, European debt restructuring and stagnation in Japan may hurt the global economy, according to New York University professor Nouriel Roubini
A “perfect storm” of fiscal woes in the United States, a slowdown in China, European debt restructuring and stagnation in Japan may hurt the global economy, according to New York University professor Nouriel Roubini.
There is a 1-in-3 chance that the factors will combine to stunt growth from 2013, he said in a speech in Singapore last week.
“There are already elements of fragility,” Mr. Roubini said. “Everybody's kicking the can down the road of too much public and private debt.”
High U.S. unemployment, a surge in oil and food prices, rising interest rates in Asia and trade disruption from Japan's earthquake threaten to sap the world economy. Stocks worldwide have lost more than $3.3 trillion since the beginning of last month, and Mr. Roubini said that the markets by mid-2012 could start worrying about a convergence of risks in 2013.
The MSCI AC World Index has tumbled 4.9% this month on concern that recent data signal that the global economy is losing steam. U.S. Treasuries rose two weeks ago, pushing two-year note yields down for a ninth week in the longest stretch of decreases since February 2008 on bets that the Federal Reserve will maintain monetary stimulus.
'SAFE HAVEN'
World expansion may slow in the second half this year as “the deleveraging process continues,” fiscal stimulus is withdrawn and confidence ebbs, Mr. Roubini said.
Easing growth may spur demand for dollar assets as a “safe haven,” he said in response to questions after the speech.
Mr. Roubini is among the analysts who predicted that the collapse in the value of U.S. mortgage securities would trigger the global financial crisis of 2007-09.
He recently said that in the United States, a failure to address the budget deficit risks a bond market “revolt.” President Barack Obama's administration has been negotiating with House Republicans, over cutting the federal government's long-term shortfall and raising the debt ceiling.
“The risk is, at some point, the bond market vigilantes are going to wake up in the U.S., like they did in Europe, pushing interest rates higher and crowding out the recovery,” Mr. Roubini said.
