by Nouriel Roubini
The
world’s economic, financial and geopolitical risks are shifting. Some
risks now have a lower probability—even if they are not fully
extinguished. Others are becoming more likely and important.
A year or two ago, six main risks stood at centre stage:
l A euro-zone breakup (including a Greek exit and loss of access to capital markets for Italy and/or Spain).
l A fiscal crisis in the US (owing to further political fights over the debt ceiling and another government shutdown).
l
A public-debt crisis in Japan (as the combination of recession,
deflation, and high deficits drove up the debt/gross domestic product or
GDP ratio).
l Deflation in many advanced economies.
l War between Israel and Iran over alleged Iranian nuclear proliferation.
l A wider breakdown of regional order in the Middle East.
These risks have now been reduced. Thanks to European Central Bank President Mario Draghi’s
“whatever it takes” speech, new financial facilities to stabilize
distressed sovereign debtors, and the beginning of a banking union, the
euro zone is no longer on the verge of collapse. In the US, President Barack Obama
and Congressional Republicans have for now agreed on a truce to avoid
the threat of another government shutdown over the need to raise the
debt ceiling.
In Japan, the first two “arrows” of Prime Minister Shinzo Abe’s
economic strategy—monetary easing and fiscal expansion—have boosted
growth and stopped deflation. Now the third arrow of
“Abenomics”—structural reforms—together with the start of long-term
fiscal consolidation, could lead to debt stabilization (though the
economic impact of the coming consumption-tax hike is uncertain).
Similarly,
the risk of deflation worldwide has been contained via exotic and
unconventional monetary policies. And the risk of a war between Israel
and Iran has been reduced by the interim agreement on Iran’s nuclear
programme concluded last November.
Though
many Middle East countries remain highly unstable, none of them is
systemically important in financial terms, and no conflict so far has
seriously shocked global oil and gas supplies. More important, as the
risks of recent years have receded, six other risks have been growing.
…read moreSource: livemint.com
Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
