NEW YORK – 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 center stage:
A eurozone breakup (including a Greek exit and loss of access to capital markets for Italy and/or Spain).
A fiscal crisis in the United States (owing to further political
fights over the debt ceiling and another government shutdown).
A public-debt crisis in Japan (as the combination of recession,
deflation, and high deficits drove up the debt/GDP ratio).
Deflation in many advanced economies.
War between Israel and Iran over alleged Iranian nuclear proliferation.
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 eurozone 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: near-zero interest rates, quantitative
easing, credit easing, and forward guidance. And the risk of a war
between Israel and Iran has been reduced by the interim agreement
on Iran’s nuclear program concluded last November. The falling fear
premium has led to a drop in oil prices, even if many doubt Iran’s
sincerity and worry that it is merely trying to buy time while still
enriching uranium.
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. But, of course,
exacerbation of some of these crises and conflicts could lead to renewed
concerns about energy security. More important, as the risks of recent
years have receded, six other risks have been growing.
For
starters, there is the risk of a hard landing in China. The rebalancing
of growth away from fixed investment and toward private consumption is
occurring too slowly, because every time annual GDP growth slows toward
7%, the authorities panic and double down on another round of
credit-fueled capital investment. This then leads to more bad assets and
non-performing loans, more excessive investment in real estate,
infrastructure, and industrial capacity, and more public and private
debt. By next year, there may be no road left down which to kick the
can.
Read more at http://www.project-syndicate.org/commentary/nouriel-roubini-warns-that-even-as-many-threats-to-the-world-economy-have-receded--new-ones-have-quickly-emerged#3PwIRmGx4oQLobP9.99
Read more at http://www.project-syndicate.org/commentary/nouriel-roubini-warns-that-even-as-many-threats-to-the-world-economy-have-receded--new-ones-have-quickly-emerged#3PwIRmGx4oQLobP9.99
Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
