MercoPress. South Atlantic News Agency

Roubini: risk of double dip recession in advanced economies

“So far more yellow weeds that green shoots”, points out the renowned economist.

The influential economist Nouriel Roubini, who rose to prominence for predicting the global credit crisis, said there is a risk that advanced economies will suffer a double dip recession and pointed out he saw more signs of “yellow weeds” than the green shoots of economic recovery.

“I see there is a risk of a relapse or of a double dip recession” Roubini, who heads economics research firm RGE Global Monitor and is an economics professor at New York University, told a conference on long-term investment.

“The recession is not going to be over today. It's going to last another 6 to 9 months.”

He said oil prices had risen too fast and were out of line with fundamentals. Growing budget deficits would also increase pressure on central banks, leading to a rise in interest rates, he added.

“I see the risk of a double-dip, W-shaped recession… towards the end of next year“ added Roubini. If by next year oil is heading towards a hundred US dollars per barrel, the budget deficits are not controlled ... “that could tip the global economy into another kind of relapse”.

He said long-term interest rates that are beginning to creep up are likely to suppress a budding recovery. He also anticipated that in the next few months, unemployment may reach 11% in the US and around 10% in Europe.

Because of bad macroeconomic data and poor earnings prospects as companies have weak pricing power and demand is still subdued, the surprises will be on the downside, he said.

“That's why I believe there's going to be a significant market correction for equities, for commodities and even for credit,” Roubini added.

He said recovery signs should come from unemployment, housing, industrial production, sales and consumption data.

“When I look at them I see so far still more yellow weeds than green shoots. They have to bottom out, in my view they haven't bottomed out. This recovery, unfortunately, because of the debt overhang… is going to be a very weak economic recovery, in my view,” he added.

The large budget deficits caused by government stimulus packages and bailouts make the work of central banks harder, as they now have to be cautious regarding inflation and interest rates.

In Europe, the dangers came both from its weak economy and from exposure of Western European banks to Eastern European economies, he said. But protectionism is not an answer, Roubini warned.

“The reality is that too much protection would be dangerous,” he said. “In Europe there is a risk that even the single market is breaking down because of protectionism, let alone the rest of the world” Roubini added.