Recession likely to be ‘long and ugly’ during 2023, says Dr. Doom economist Nouriel Roubini

One of the first experts to predict the 2008 recession is sounding alarm bells that another major economic downturn is on the way.

With fears of a recession in the US rising, many economists are predicting such a recession as early as this year. Earlier this month, Bank of America strategists wrote that they expect a “mild recession” sometime next year. Others, such as former Treasury Secretary Larry Summers, have been more bearish with their recession forecasts, predicting that only a deep recession would be enough to fix 40 years of high inflation in the country.

Now economist Nouriel Roubini—New York University professor and CEO of Roubini Macro Associates—whose conscience of the 2007 and 2008 housing market crashes earned him the nickname Dr. Doom—seems to have chosen a side.

In an interview with Bloomberg this week, Roubini said a recession is likely to hit the US by the end of 2022 before spreading globally next year, possibly lasting for the entirety of 2023.

“It won’t be a short and shallow recession; it’s going to be serious, long and ugly,” Roubini said.

debt problem

To curb rising US inflation, the Federal Reserve has implemented an aggressive series of interest rate hikes to put the brakes on the economy. The goal is to engineer a soft landing for the economy, where inflation returns to the Fed’s target 2% annual rate, without triggering a prolonged economic downturn or significant increase in unemployment.

But with the current economic climate, the Fed’s soft landing target is “mission impossible,” according to Roubini, who sees the rapid increase in both corporate and government debt over the past year as a damaging indicator.

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During the 2008 recession, Roubini argued that large amounts of consumer and corporate debt were mismanaged and neglected by credit agencies and the federal government, contributing to the recession. In his interview with Bloomberg, he said that there are very similar threats facing the economy today.

Roubini said the environment created by rising interest rates does not bode well for the rising levels of global debt accumulated in the wake of the pandemic. As lending rates continue to rise – as indicated by the Federal Reserve – this could create a growing number of so-called zombie companies, firms that were formed during the pre- and early-pandemic eras of easy credit, but now with Stumbled upon unable to make a profit or finance their loans.

“Many zombie institutions, zombie houses, corporates, banks, shadow banks and zombie countries are going to die” as rates continue to rise, Roubini said.

A “long and ugly recession” will devastate financial markets as well, Roubini warned. The S&P 500 – which had one of its worst days this year in higher-than-expected inflation readings last week – could fall anywhere between 30% and 40%, he said, depending on whether the recession How serious

worst case scenario

But despite a hike in interest rates after interest rate hikes, Roubini said inflation in the US was due to supply-chain shocks from the pandemic, the ongoing consequences of the Ukraine war, and China’s zero-COVID policy. may be due to slowing down. Country.

Roubini warned that the combination of low economic growth and stagnant inflation could lead to a global worst of 1970s-style stagflation, where prices remain high but economies remain stagnant anyway. Institutions including the World Bank have warned several times this year that a return to the recession of the 1970s remains a serious concern for the global economy.

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This is not the first time that Roubini has expressed his pessimistic views on the future of the economy. In 2020, Roubini warned that a new “Great Depression” was about to hit the US during 2020, citing rising debt levels. And in July, Roubini predicted that a “severe recession and a severe debt and financial crisis” was just around the corner due to the growing number of zombie companies in the economy.

Not every market watcher agrees with Roubini’s view that rising debt levels and inflation will push the economy into a deep recession. Ark Investments CEO Kathy Wood tweeted On Tuesday that sly economists like Roubini cited “unwinding” headline inflation, a measure of total inflation within the economy, set to be “blinded” by inflation receding too soon.

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