Roubini Sees Big 'Double-Dip' Risk: Report

Reuters
24 Aug 2009 12:20 AM ET
Nouriel Roubini, one of the few economists who accurately predicted the magnitude of theworld's recent financial troubles, sees a "big risk" of a double-dip recession, according to an opinion piece posted on the Financial Times' Web site on Sunday. Roubini, a professor at New York University's Stern School of Business, said it appears the global economy will bottom out in the second half of this year, and that U.S. and westernEuropean economies will likely experience "anemic" and "below trend" growth for at least a couple of years. Yet he warned that policymakers face a "damned if they do and damned if they don't" conundrum in trying to unwind their massive fiscal and monetary stimuli to keep the global economy from toppling into a depression. He said that if policymakers try to fight rising budget deficits by raising taxes and cutting spending, they could undermine any recovery. On the other hand, he said if they maintain large deficits, worries about excessive inflation will grow, causing bond yields and borrowing rates to rise and perhaps choking off economic growth. Roubini said another reason to worry is that energy, food and oil prices are rising faster than fundamentals warrant, and could be driven higher by speculation or if excessive liquiditycreates artificially high demand. He said the global economy "could not withstand another contractionary shock" if speculation drives oil rapidly toward $100 per barrel. U.S. crude oil futures traded Friday at about $73.83. Roubini said the anemic growth he expects would follow a couple of quarters of rapid growth, as inventories and production levels recover from near-depression levels.