The global economy faces the risk of a double-dip recession, according to economic soothsayer Nouriel Roubini.
That’s because the deleveraging process necessitated by the financial crisis will curb economic activity by governments, banks, and individuals, the New York University professor told CNBC.
But central banks and governments have to be careful not to add more stimuli to counter this situation, lest they join Greece in amassing unmanageable budget deficits.
In any case, investors will see that budget deficits have to be monetized, crowding out investment in the private sector, Roubini says.
In the United States, “The economy is going to be sluggish, the labor market is going to be sluggish," he predicted.
Growth will be solid in the first half of the year but fall back in the second, Roubini says.
Meanwhile, emerging market economies with strong growth, like China, should tighten their monetary policies to avoid bubbles, he says.
"My worry about China is that if they are not doing enough early on, they are left to do more in the second half of the year. And there will be a slowdown in the U.S., Europe, and Japan, and then we are forced into a double-dip on the global level," Roubini said.
The International Monetary Fund isn’t on the same page as Roubini. It just lifted its forecast for global growth in 2010 to 3.9 percent from the 3.1 percent it estimated in October.
And the IMF sees growth accelerating to 4.3 percent next year.
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