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”.

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