Tags: Roubini | China | Currency | Appreciate

Roubini: Japan is ‘Accident Waiting to Happen’

Tuesday, 02 November 2010 08:11 AM

Nouriel Roubini, the New York University professor who predicted the global financial crisis, said the world’s advanced economies will show “anemic” growth, while Japan is an “accident waiting to happen.”

U.S. house prices may fall further and economic growth may slow to 1 percent by year-end, Roubini told a conference in Cape Town today. As the U.S. prepares to go to the polls today, Roubini said the prospect of Republican control of the House of Representatives will discourage further fiscal stimulus.

“Economic recovery will be U-shaped,” Roubini said. “The next year is going to see a painful process of deleveraging, both in the private and public sector, lower consumption, lower spending, lower budget deficits, more savings, reduction of debt. That implies an anemic economic recovery.”

The risk of a double-dip recession remains, which will probably prompt the Federal Reserve to announce another round of debt purchases, known as quantitative easing, this week, Roubini said. The U.S. unemployment rate is close to a 26-year high, even with deposit returns at 0.25 percent in the U.S., 0.5 percent in the U.K. and 0.1 percent in Japan.

“Most central banks in developed markets may do another round of quantitative easing,” Roubini said. While this is unlikely to have much effect on growth, it will help avoid a return to recession.

Carry Trades

The Bank of Japan unexpectedly lowered its benchmark interest rate at its meeting last month and pledged to spend 5 trillion yen ($62 billion) to buy assets including government bonds and corporate debt.

Economic growth in Japan is low because of demographics and low productivity, with an ageing population implying “massive unfunded liabilities” for the public sector, Roubini said. “The economy has not done the structural reform needed even after 15 years of near depression and politically there is a total stalemate. Japan is also an accident waiting to happen.”

Near-zero interest rates in industrialized nations are encouraging investors to borrow at lower costs and invest in markets offering higher returns, prompting rallies in local- currency debt from Indonesia to Brazil. The transactions, known as carry trades, have strengthened South Africa’s rand and its local-currency bonds.


“Emerging markets will be different,” Roubini said. China, most of emerging Asia, many parts of Latin America and part of the Middle East “are in much better shape” and recovery for them is “V-shaped.”

China is under pressure from major trading partners, including the U.S. and Europe, to let its currency appreciate more quickly. Emerging economies have complained that low U.S. interest rates and Federal Reserve asset purchases have pushed the dollar down and sent funds flooding into their markets, expanding asset bubbles and stoking inflation.

While some emerging markets are seeking to weaken their currency, China may not let the yuan appreciate by more than 4 percent to 5 percent a year, Roubini said.

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Nouriel Roubini, the New York University professor who predicted the global financial crisis, said the world s advanced economies will show anemic growth, while Japan is an accident waiting to happen. U.S. house prices may fall further and economic growth may slow to 1...
Tuesday, 02 November 2010 08:11 AM
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