Nouriel Roubini: lacklustre recovery followed by a depression

We may see a U-shaped recovery at first, but then will come the L-shaped depression, says Nouriel Roubini.

This crisis may give way to a “lacklustre U-shaped recovery” this year, says Nouriel Roubini, the economist known for predicting the 2007 housing-market crash. But “an L-shaped ‘Greater Depression’ will follow”.

Global debt levels were already perilously high. Now, government spending to tackle the crisis will bring massive deficits. Worsening demographics will maintain the pressure on public finances even after Covid-19.

The loss of income for households and companies will bring rising defaults. Together with huge spare capacity in the economy that will ensure a sluggish recovery and may create deflation. As central banks battle this through unconventional monetary policies that amount to currency debasement, expect stagflation (stagnant growth paired with inflation). 

Digital disruption means that income and wealth gaps will widen further. This will combine with fears about supply-chain security to encourage nationalism, populism and xenophobia. The results will include de-globalisation and a backlash against democracy. 

The US-China stand-off will mean decoupling in trade, investment, data, technology and monetary arrangements. This diplomatic break-up may usher in a new cold war, fought as cyberwarfare. 

Finally, environmental disruption and climate change will wreck havoc – including future pandemics.

These risks,”already looming large before Covid-19 struck”, threaten to sweep “the entire global economy into a decade of despair”.

Recommended

I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021
Why is the UK short of CO2 and what does it mean for you?
UK Economy

Why is the UK short of CO2 and what does it mean for you?

The UK is experiencing a carbon dioxide shortage that could lead to empty shelves in supermarkets. Saloni Sardana explains what’s going on and how it …
21 Sep 2021
What to invest in to beat soaring energy prices
Investment strategy

What to invest in to beat soaring energy prices

As gas and electricity prices hit the roof, John Stepek explains how to invest to offset higher energy bills.
21 Sep 2021
Are Spacs just for suckers?
Investment strategy

Are Spacs just for suckers?

This year has seen a big boom in activity by special purpose acquisition companies (Spacs) in the US and the Spac craze is spreading to other markets…
21 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021