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

Cryptocurrency roundup: authorities tighten the screw
Bitcoin & crypto

Cryptocurrency roundup: authorities tighten the screw

Saloni Sardana looks at the cryptocurrency stories that caught our eye this week.
21 Jan 2022
Stockmarket crash: is the “superbubble” heading for a “superbust”?
Stockmarkets

Stockmarket crash: is the “superbubble” heading for a “superbust”?

America's Nasdaq stock index is down by more than 10% after soaring to all-time highs in a "superbubble". Are we about to see a "superbust" stockmarke…
21 Jan 2022
Inflation: now we really have something to worry about
Inflation

Inflation: now we really have something to worry about

We’ve been worrying about a sharp rise in inflation for years, says Merryn Somerset Webb – now, we finally have something to worry about.
21 Jan 2022
Share tips of the week – 21 January
Share tips

Share tips of the week – 21 January

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
21 Jan 2022

Most Popular

Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022
Interest rates might rise faster than expected – what does that mean for your money?
Global Economy

Interest rates might rise faster than expected – what does that mean for your money?

The idea that the US Federal Reserve could raise interest rates much earlier than anticipated has upset the markets. John Stepek explains why, and wha…
6 Jan 2022