Experts see trouble ahead for developed world, especially US

The doomsayers were led by New York University economist Nouriel Roubini, who warned in booming tones that “there is a significant risk of a double-dip recession in the United States” as well as in Japan and many European countries.

Some of the assembled experts and leaders at the annual Ambrosetti Forum on the shores of Lake Como were somewhat more upbeat: economist Edwin Truman, a senior fellow of the Peterson Institute for International Economics, predicted that “the most likely global outlook is subpar growth.”

But most appeared to agree on a sobering array of basic problems standing in the way of true recovery:

— Many of the growth drivers in place since the collapse of Lehman Brothers are winding up or have ended, including not only the massive stimulus spending but tax breaks, schemes such as the “cash for clunkers” program and — for some countries like Russia — high commodity prices.

— The stimulus deemed necessary to jump-start moribund economies soon causes deficits and debt, upsetting the markets enough to spur austerity — which undermines growth.

— Most of the world's growth stems from a developing world led by China — which is so dependent on exports that it needs the West to continue to buy, and so will suffer if recovery in the rich world proves short-lived.

— Europe continues to lose competitiveness partly because of the euro, which — for all the fretting over its dip earlier this year at the height of the Greek debt crisis — remains high in purchasing price parity terms versus the U.S. dollar.

— The sector that is widely seen as the spark of the global recession — U.S. real estate — has not recovered, with house-buying flat and the mortgage market, with its related financial instruments, essentially still in ruins.

— The jobs picture is not improving and in parts of the developed world — such as Spain, with some 20 percent unemployment — it is disastrous.

“Conditions in the U.S. labor market are awful,” said Roubini, who gained celebrity for predicting the global collapse of 2008 when others were still celebrating the boom times. He added that even if some U.S. growth is maintained in coming quarters it will be so low — perhaps an annualized 1 percent, which means per capita stagnation — that “it will feel like recession for most people.”

Harvard University historian Niall Ferguson noted that since 2001 the United States has seen its debt-to-GDP ratio double to 66 percent and that it may well be headed toward the danger zone of 100 percent. “This is a completely unsustainable fiscal policy,” said Ferguson. “Pretty soon the U.S. will be spending more on debt service than national security. ... That's a tipping point for any global power.”

1|2|Next Page>>

SharePrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email