Famed economist Nouriel Roubini of New York University warns that the United States will continue to remain mired in a global economic funk.
“We are likely to remain in what the IMF calls the 'new mediocre,' Larry Summers calls 'secular stagnation,' and the Chinese call the 'new normal.' But make no mistake: There is nothing normal or healthy about economic performance that is increasing inequality and, in many countries, leading to a populist backlash – both on the right and the left – against trade, globalization, migration, technological innovation, and market-oriented policies,” he wrote in his Project Syndicate blog.
“Structural and market-oriented reforms are necessary to boost potential growth. But, given the timing of costs and benefits, such measures are especially unpopular if an economy is already in a slump,” he wrote.
While the U.S. recovery has been gaining momentum and some emerging markets including as Mexico have performed well, the International Monetary Fund views Europe and Japan as major disappointments, while China's slowing growth has hurt oil and commodity exporting countries, including Brazil and Russia.
As for a solution, Roubini suggested that as the cliche goes, old habits are indeed hard to break.
“It will be no less difficult to leave behind unconventional monetary policies, as the US Federal Reserve recently suggested by signaling that it will normalize policy interest rates more slowly than expected," he wrote.
"Meanwhile, fiscal policy – especially productive public investment that boosts both the demand and supply sides – remains hostage to high debts and misguided austerity, even in countries with the financial capacity to undertake a slower consolidation,” he wrote.
The International Monetary Fund recently warned of the risk of political isolationism, notably Britain's possible exit from the European Union, and the risk of growing economic inequality as it cut its global economic growth forecast for the fourth time in a year.
The IMF said the global economy was vulnerable to shocks such as sharp currency devaluations and worsening geopolitical conflicts, The Wall Street Journal
In its latest World Economic Outlook, the IMF forecast global economic growth of 3.2 percent this year, compared to a forecast of 3.4 percent in January. The growth estimate also was lowered in July and October of last year.
"In brief, lower growth means less room for error," IMF's chief economist, Maurice Obstfeld, told a news conference, adding that "scarring effects" from years of tepid growth could in turn weaken demand, thin the workforce, and reduce potential output further, creating a scenario of "secular stagnation."
(Newsmax wire services contributed to this report).
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