GROWTH in the US and other developed nations will remain anaemic over the next year despite signs the global recession is nearing an end, Prof Nouriel Roubini said via satellite at a Cape Town conference yesterday.
Roubini, the New York University economics professor who correctly predicted the 2008 financial crisis, however, warned that the global asset recovery was starting to look like a bubble.
“I expect the US recovery to follow a U-shape. Most V-shaped recoveries in the past were driven by corporations investing in capacity. This time capacity in the US and Europe is down to 70%, eliminating the need for capital investments.”
Other reasons he gave for a slow recovery were over-capitalisation in developed nations, weak private credit extension, large budget deficits caused by fiscal stimuli, and weak demand due to high unemployment.
Roubini pins a 60% probability to a U-shaped recovery and 20% to a V-shaped recovery, as is expected by equity markets. There remains the risk of a W-shaped correction, he warned.
He expects growth rates of 1,5%-3% for the US next year, below 3% across other emerging markets such as the European Union and Japan — but 5%-7% in emerging markets, including Africa. “Most emerging markets did not have the same (fiscal) leverage and financial problems.
“Over the past decade these countries have increasingly followed improved fiscal and monetary policies and can now afford to implement counter-cyclical policies, and that’s why their recovery is much better than that of developed nations.
“But there will be a limit to how much emerging markets can recover due to their dependence on weaker developed markets.”
True to his bearish predictions, Roubini yesterday warned that asset prices were now becoming the source of a huge global asset bubble which could pop within the next two years if policy makers didn’t nip it in the bud.
The asset bubble is caused by excess liquidity from fiscal stimulus packages worldwide flowing into commodities and equities.
This “wall of liquidity” was exacerbated by low US Federal lending rates, Roubini said.