Nouriel Roubini is ‘cheering us up’ with another article in which he prophesizes gloomy future fort the US. Well, one can’t write something optimistic after he’s officially dubbed “Dr. Doom”, can he?
Roubini gave 5 reasons why US economic growth will slow further in the second half of 2012 and be even lower in 2013:
1. US GDP growth in the second quarter has decelerated from a mediocre 1.8% in Q1 to 1.5% in Q2, as job creation – averaging 70,000 a month – fell sharply.
2. Expectations of the “fiscal cliff” – automatic tax increases and spending cuts set for the end of this year – and the presidential elections will affect spending and growth.
3. The fiscal cliff would amount to a 4.5%-of-GDP drag on growth in 2013 if all tax cuts and transfer payments were allowed to expire and draconian spending cuts were triggered. Tax increases and spending cuts will be milder, but even if the fiscal cliff turns out to be a mere 0.5% of GDP and annual growth at the end of the year is just 1.5%, as seems likely, the fiscal drag will suffice to slow the economy to stall speed: a growth rate of barely 1%.
4. Growth in disposable income has been sustained since last year by another $1.4 trillion in tax cuts and extended transfer payments. That means US is stealing some growth from the future.
5. Negative external factors: escalating euro zone crisis, an increasingly hard landing for China, a generalized slowdown of emerging-market economies and the risk of higher oil prices in 2013 as the conflict with Iran progresses.
Roubini expects more QE from the Fed, but the economist thinks it won’t be efficient as US interest rates are already extremely low. US dollar will remain strong due to the risk aversion created by Europe and amid easing in other countries. As a result, the policies won’t help and US growth will be weaker. According to Roubini, significant equity-price correction could trigger the contraction of US economy in 2013.
The review is based on Mr. Roubini’s article for Project-Syndicate, 2012
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