Nouriel Roubini: recession is certain

Nouriel Roubini © Stefan Wermuth/Bloomberg via Getty ImagesNouriel Roubini, professor of economics, New York University Stern School of Business

Nouriel Roubini, described by Bloomberg as a “renowned doomsayer”, is concerned that we are heading for a global recession next year. The New York University economics professor is perhaps best known for his warnings about the precarious state of the US housing market prior to the financial crisis of 2008.

Now he is worried that the trade war between the US and China, combined with a potential spike in oil prices (due to geopolitical tensions between the US and Iran), is set to derail the bull market. In short, “it’s a scary time for the global economy”, he tells Bloomberg TV. While there has been a temporary truce in the trade war, the underlying tensions between China and the US mean it’s only a matter of time before the problem arises again. “This divorce is going to get ugly compared to the divorce between the US and the Soviet Union.”

Central banks will, of course, react, which is one factor helping to prop up markets – investors already expect the Federal Reserve to cut interest rates later this month. Yet as Roubini points out, during the 2008 crisis the Fed was cutting interest rates from a much higher level, and still couldn’t prevent the recession. With key interest rates still at or near record lows around the world, and levels of debt very high, monetary policy alone cannot keep the party going. Throw in the risk of an oil-price shock, and we could end up with 1970s-style stagflation, with rising prices combined with slower growth.