(January 3, 2014) — Economist Nouriel Roubini has forecast a marginally positive outlook for 2014, predicting a slight uptick in global growth and a decrease in tail risks.
Nicknamed “Dr. Doom” for forecasting the financial crisis pre-2008, Roubini wrote on the Project Syndicate website that after a year of below-trend growth, the next 12 months looked to be more positive for both advanced and emerging economies.
“The advanced economies, benefiting from a half-decade of painful private-sector deleveraging (households, banks, and non-financial firms), a smaller fiscal drag (with the exception of Japan), and maintenance of accommodative monetary policies, will grow at an annual pace closer to 1.9%,” he said.
“Emerging economies will grow faster in 2014—closer to 5% year on year—for several reasons: brisker recovery in advanced economies will boost imports from emerging markets, the Fed’s exit from QE will be slow—keeping interest rates low, policy reforms in China will attenuate the risk of a hard landing, and, with many emerging markets still urbanising and industrialising, their rising middle classes will consume more goods and services.”
Roubini also hailed a decrease in tail risks by the end of 2013—risks considered to have a low probability of happening but with high impact shocks if they do.
“The threat, for example, of a eurozone implosion, another government shutdown or debt-ceiling fight in the United States, a hard landing in China, or a war between Israel and Iran over nuclear proliferation, will be far more subdued,” he said.
Despite this, advanced economies such as the US, the Eurozone, Japan, the UK, and Canada, were likely to only achieve marginal growth, if any at all, Roubini continued. This was because both households and companies remained saddled with high debt ratios, leading to an expected continuation of deleveraging.
High budget deficits and public debt burdens will also force governments to continue their painful fiscal adjustments, and the subsequent abundance of policy and regulatory uncertainties will keep private investment spending “in check”.
Living up to his moniker, Roubini went on to list the long-term constraints affecting global growth, namely secular stagnation caused by years of underinvestment in human and physical capital.
And any structural reforms that these economies introduced to boost potential growth will be implemented too slowly, he predicted.
The economist touched on a number of individual countries’ fates: In Japan, “Abe’s government has made significant headway” but there remain big uncertainties, while in the US “economic performance in 2014 will benefit from the shale-energy revolution, improvement in the labor and housing markets, and the ‘reshoring’ of manufacturing”.
Some emerging markets—India, Indonesia, Brazil, Turkey, South Africa, Hungary, Ukraine, Argentina, and Venezuela—would remain fragile in 2014, owing to large external and fiscal deficits, slowing growth, below-target inflation, and election-related political tensions.
The better-performing emerging markets are those with fewer macroeconomic, policy, and financial weaknesses, such as South Korea, the Philippines, Malaysia, and other Asian industrial exporters; Poland and the Czech Republic in Europe; Chile, Colombia, Peru, and Mexico in Latin America; Kenya, and Rwanda, along with the Gulf oil-exporting countries.
Roubini concluded: “The global economy will grow faster in 2014, while tail risks will be lower. But, with the possible exception of the US, growth will remain anaemic in most advanced economies, and emerging-market fragility—including China’s uncertain efforts at economic rebalancing—could become a drag on global growth in subsequent years.”