Nouriel Roubini, a.k.a Dr. Doom, is predicting a slowdown in the second half of this year. Speaking at a Manhattan conference on Monday, the famously bearish economist told investment professionals that the United States can expect an “anemic” recovery in 2010, with the second half of the year underperforming the first. He forecast economic growth of 3 percent for the first six months, with just 1 to 1.5 percent in the second half.
Roubini, professor of New York University’s Stern School of Business, laid out the less-than-stellar prospects for global recovery during the IMCA New York Consultants Conference at the Grand Hyatt. Jobs are coming back eventually, but don’t be surprised to see unemployment reach 10.5 “if not 11 percent,” he said, and lost wages will dampen the consumer demand that fuels economic growth. “Some of these jobs are gone forever in the financial sector, construction and real estate,” he told a subdued audience of more than 800 who packed the Hyatt ballroom.
Roubini said recessionary factors are aligning in ways that haven’t been seen in some time, such as a deleveraging of the housing market and a wounded financial sector. With 130 banks closed and 350 non-bank mortgage lenders gone for good, there are fewer institutions around to provide the lending and other services that have helped lead the nation out of past downturns. Business capital spending, which also has played a part in economic turnarounds, is unlikely to climb since production capacity is underutilized, he added.
Last year’s rally in equities could continue into 2010, boosted by continued federal stimulus spending and the restocking of inventories, he said. But profitability is not sustainable without revenue growth. Cost-cutting only goes so far; a company that reduces spending is also reducing the income of some other company with whom it does business.
Could it get worse? Well, yes. Roubini laid out the scenarios, including higher oil prices that could stifle growth, a currency carry trade that could cripple the dollar, and a double-dip recession a la the United States in 1937 or Japan in the late 1990s after both countries raised taxes. But it could get better, too. Roubini said inflation fears are overblown, given the slack in labor markets in the United States and the Eurozone, coupled with a lack of pricing power among many firms. Don’t look for inflationary forces to emerge until 2012 “or beyond,” he said. And he sees more growth in emerging markets, which aren’t as leveraged as their larger neighbors.
And remember, “we could have had a near depression” had governments around the globe not acted as they did by boosting spending a year ago amid the Wall Street collapse, he said.