Roubini Sees Increased Risk of Double Dip for the U.S. Economy

Nouriel Roubini, one of the few economists who accurately predicted the magnitude of the world’s recent financial crisis, believes the chance of a double-dip recession in the U.S. economy is increasing because of risks related to poor economic data in the country coupled with Europe’s ongoing debt crisis.

In a research paper, cited by CNBC, Roubini writes that because of the risks associated with exit strategies from the massive monetary and fiscal easing, the US faces challenges in the second half and “appears far too close to the tipping point of a double-dip recession”.

According to the paper, Roubini expects at best a U-shaped recovery this year, where “growth will be anemic and below trend for at least a couple of years”.

The euro zone is also facing an increased risk of a double-dip fall as they try to restore fiscal solvency and discipline. According to Roubini’s paper, even if the euro zone’s delicate situation improves as gov’ts work together to better align structural policies in support of the euro and does not suffer a double dip, growth in demand will be even more limited and this will hurt the United States’ potential for export growth.

The Roubini Global Economics benchmark scenario, notes CNBC, puts the risk of a double dip at 20%, while a slow, protracted, U-shaped recovery is given the highest probability of 60%.

1 Comment on Roubini Sees Increased Risk of Double Dip for the U.S. Economy

  1. Give credit to Dr. Roubini for getting the depth of the great recession right. Hence, the depths are where the gent has kept his followers. It may not appear so to this guru but we’ve experienced a tremendous recovery in stocks and a nearly 6% (and climbing) GDP number in ’09s last quarter.

    While there’s a theoretical possibility of a new plunge, collapse in markets or the economy, the probability is very low in the near future. The momentum behind their recovery will remain strong for a year or more.

    In the longer-term, Dr. R. should have reason to be concerned, as financial crises are coming. Moral hazard is the reason, and DC is creating new ones. In a way, we’ve already begun a new crisis in the sovereign debt crisis throughout the developed world. However, this lacks surprise element and is unlikely to be a direct threat to the private economy’s performance.

    What there is to fear is the unpredictability of governmental response when it gets short of cash to pay its obligations, insolvency or worse (including the US). In the longer term, look for stagflation with plenty of volatility.

    Luis de Agustin

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