Tuesday, 02 Nov 2010 08:11 AM
Nouriel Roubini, the New York University professor who
predicted the global financial crisis, said the world’s advanced
economies will show “anemic” growth, while Japan is an “accident
waiting to happen.”
U.S. house prices may fall further and economic growth may slow
to 1 percent by year-end, Roubini told a conference in Cape Town
today. As the U.S. prepares to go to the polls today, Roubini
said the prospect of Republican control of the House of
Representatives will discourage further fiscal stimulus.
“Economic recovery will be U-shaped,” Roubini said. “The next
year is going to see a painful process of deleveraging, both in
the private and public sector, lower consumption, lower
spending, lower budget deficits, more savings, reduction of
debt. That implies an anemic economic recovery.”
The risk of a double-dip recession remains, which will probably
prompt the Federal Reserve to announce another round of debt
purchases, known as quantitative easing, this week, Roubini
said. The U.S. unemployment rate is close to a 26-year high,
even with deposit returns at 0.25 percent in the U.S., 0.5
percent in the U.K. and 0.1 percent in Japan.
“Most central banks in developed markets may do another round of
quantitative easing,” Roubini said. While this is unlikely to
have much effect on growth, it will help avoid a return to
recession.
Carry Trades
The Bank of Japan unexpectedly lowered its benchmark interest
rate at its meeting last month and pledged to spend 5 trillion
yen ($62 billion) to buy assets including government bonds and
corporate debt.
Economic growth in Japan is low because of demographics and low
productivity, with an ageing population implying “massive
unfunded liabilities” for the public sector, Roubini said. “The
economy has not done the structural reform needed even after 15
years of near depression and politically there is a total
stalemate. Japan is also an accident waiting to happen.”
Near-zero interest rates in industrialized nations are
encouraging investors to borrow at lower costs and invest in
markets offering higher returns, prompting rallies in local-
currency debt from Indonesia to Brazil. The transactions, known
as carry trades, have strengthened South Africa’s rand and its
local-currency bonds.
Different
“Emerging markets will be different,” Roubini said. China, most
of emerging Asia, many parts of Latin America and part of the
Middle East “are in much better shape” and recovery for them is
“V-shaped.”
China is under pressure from major trading partners, including
the U.S. and Europe, to let its currency appreciate more
quickly. Emerging economies have complained that low U.S.
interest rates and Federal Reserve asset purchases have pushed
the dollar down and sent funds flooding into their markets,
expanding asset bubbles and stoking inflation.
While some emerging markets are seeking to weaken their
currency, China may not let the yuan appreciate by more than 4
percent to 5 percent a year, Roubini said.
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