Dr. Doom 2013 prediction: Economy will stall
Dr. Doom 2013 prediction 鈥� alias economist Roubini's forecast 鈥� contradicts expectation that US economic growth will pick up. But he correctly called the 2008 debacle, so the 'Dr. Doom' 2013 prediction gets plenty of attention.
Nouriel Roubini, professor of economics at New York University and chairman of Roubini Global Economics, seen in this 2010 file photo, is known as 'Dr. Doom' for his pessimistic but prescient forecasts. The Dr. Doom 2013 prediction: US economy will slow to stall speed.
Mike Segar/Reuters/File
A robust and self-sustaining U.S. recovery is not on the cards, and we should now expect below trend growth for many years to come, according to Nouriel Roubini, the economist famed for his bearish views.
Roubini, best-known for calling the 2008 economic crisis, outlined five reasons the bulls have been wrong and argued that an American economic cold will lead the rest of the world to catch pneumonia in a post on the听.
听鈥淓ven this year, the consensus got it wrong, expecting a recovery to annual听GDP growth听of better than 3 percent,鈥� the founder of Roubini Global Economics wrote.
听鈥淎nd now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of U.S. manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013.鈥�
听Roubini believes the U.S. economy will slow further this year and next as expectations of the 鈥渇iscal cliff鈥� keep spending and growth lower 鈥� and uncertainty about the outcome of the presidential election dogs markets.
听听could knock 4.5 percent off 2013 growth if all tax cuts and transfer payments were allowed to expire and spending cuts where triggered, according to Roubini.
听鈥淥f course, the drag will be much smaller, as tax increases and spending cuts will be much milder. But, even if the fiscal cliff turns out to be a mild growth bump 鈥� a mere 0.5 percent of GDP 鈥� and annual growth at the end of the year is just 1.5 percent, as seems likely, the fiscal drag will suffice to slow the economy to stall speed: a growth rate of barely 1 percent,鈥� he wrote.
, which drives plenty of the global economy as well as the U.S., will not be able to keep spending when $1.4 billion worth of tax cuts and extended transfer payments come to an end according to Roubini.
鈥淚n 2013, as transfer payments are phased out, however gradually, and as some tax cuts are allowed to expire, disposable income growth and consumption growth will slow. The U.S. will then face not only the direct effects of a fiscal drag, but also its indirect effect on private spending,鈥� he wrote.
The problems in the euro zone, a听听and emerging markets, added to the chance that oil prices could be driven higher by tensions over Iran鈥檚 nuclear program, will also add to America鈥檚 economic woes, Roubini argued.
He warned the听Fed听will not be able to ride to the rescue this time.
鈥淭丑别 U.S. Federal Reserve will carry out more quantitative easing this year, but it will be ineffective: long-term interest rates are already very low, and lowering them further would not boost spending,鈥� he wrote.
鈥淚ndeed, the credit channel is frozen and velocity has collapsed, with banks hoarding increases in base money in the form of excess reserves. Moreover, the dollar is unlikely to weaken as other countries also carry out quantitative easing.鈥�
Roubini also argued that earnings growth is now beginning to run out of steam, after buoying markets earlier in the economic cycle. The听has so far presented a mixed picture.
鈥淎 significant equity-price correction could, in fact, be the force that in 2013 tips the US economy into outright contraction. And if the U.S. starts to sneeze again, the rest of the world 鈥� its immunity already weakened by Europe鈥檚 malaise and emerging countries鈥� slowdown 鈥� will catch pneumonia,鈥� he warned.