Nouriel Roubini: No, I don't expect it's 2008 again. I don't expect a global recession or financial crisis.
The current turmoil is driven by a bunch
of factors, primarily concern that China might have a hard landing and
collapse of its stock market and currency.
My view of China is that it's going to
have a bumpy landing, not a hard landing. Growth this year of 6% going
to 5%. Those who say it's 4% going to zero, I think they're getting it
wrong. They don't realize that the service sector is rising and growing
much faster than the manufacturing sector.
The US is slowing down, especially
manufacturing. And the fall of oil prices is a negative, at least in the
short run, because the US is a major producer of oil and energy. The
fall in oil prices is negative for the markets because the market has a
certain weight coming from oil and energy companies. But more
importantly, it's not just a supply shock that is driving oil prices but
concerns about global demand. China. Emerging markets. And concerns
about weakening demand are a negative sign for the global economy.
The Middle East is a mess. The proxy wars
between Saudi Arabia and Iran are getting worse. And even in Europe,
there's terrorism and the migration crisis, the risk of Grexit, the risk
of Brexit, austerity fatigue in the periphery, bailout fatigue in the
core — there are plenty of issues that can go wrong in Europe. So,
suddenly, the market is becoming nervous and there's a correction.
Whether the correction becomes a true
bear market depends on whether these shocks are more persistent or less
persistent, first. And second on the policy response.
At this point, the PBOC (central bank of
China) will have to ease more. The Chinese will have to do a round of
fiscal stimulus. The Fed will have to signal more clearly they're going
to wait longer before they hike rates again. And the European Central
Bank and the Bank of Japan will have to ease more.
If all central banks try to do more, you
can maybe stop or reverse this particular correction. If you don't have a
strong policy response, this could become an outright economic
slowdown.
Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
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