The global economy faces four events that could merge into a perfect storm and deal an already tepid recovery a major blow in 2013, said New York University economist Nouriel Roubini.
“One is that the eurozone crisis gets worse and becomes a train wreck. The second one is that the fiscal cliff becomes severe in the United States and you have a contraction,” Roubini told Foreign Policy magazine, referring to the fiscal cliff, a combination of expiring tax breaks and automatic spending cuts kicking in at the same time and threatening to throw the economy into a recession next year if left unchecked by Congress.
“The third one is that you might have a hard landing in China, and the fourth one is the risk of conflict in the Middle East,” Roubini added.
Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation
“I think that each one of them alone could trigger a global economic downturn because they’re all systemically important, let alone if several of them were to occur at the same time in a virulent way.”
The world, however, shouldn’t breathe a sigh of relief if all four threats don’t converge at the same time.
Even if one event were to occur, markets and economies could still feel shockwaves, especially if governments fail to properly react.
“Of course, with each one of them, appropriate policy reactions may stem those risks — for every problem, there is a solution — but we’ll see whether the policy response is going to be adequate, within countries and across countries, because a lot of them imply policy coordination, as in the case of the eurozone,” Roubini said.
“Even without a global perfect storm of crises, the next year could be quite bumpy for the global economy and for financial markets.”
The International Monetary Fund has cut its global growth forecasts for 2013.
The “lender of last resort” expects the world economy to expand 3.5 percent this year, unchanged from a July forecast and down from an April estimate of 3.6 percent.
The global economy, meanwhile, is expected to grow 3.9 percent in 2013, down from a 4.1 percent forecast made in July.
“We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July, and our forecast has trended downward over the last 12 months,” IMF Managing Director Christine Lagarde said, according to Reuters.
The European debt crisis poses the greatest risk to the world economy, but the U.S. fiscal cliff poses a “serious risk” as well, Lagarde said.
Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation
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