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Tuesday, October 25, 2011

Roubini Week: Summary of Perth Address

50 Percent Chance of Another Recession
by Nouriel Roubini

From Perth Now:

THE economist known as “Dr Doom” has tipped a more than 50 per cent chance of another global recession that could force the break-up of the eurozone.

Professor Nouriel Roubini spelled out for delegates at the Commonwealth Business Forum in Perth today there were potential positive and negative impacts stemming from the current global financial turbulence and uncertainty surrounding the Eurozone.

Specifically, he suggested there was a “significant probability” of a double dip recession engulfing most advanced economies around the world, stemming from unresolved issues in Europe.

“In my view, there’s a significant probability – more than 50 per cent – that over the next 12 months, there’s going to be another recession in most advanced economies,” the New York University professor said.

“If we look at the situation in the United States, in the Eurozone and in the United Kingdom, the chances of another recession are significant.

“Whether you call it a double dip recession, or a cultivation of the first recession or a second recession it doesn’t matter – it’s semantic.”

Professor Roubini also suggested there could be disorderly defaults and, in turn, a disorderly break up of the Eurozone

“If we’re asking ourselves whether the recession in advanced economies is going to be mild or whether it will be severe…the answer very much depends on what happens in the Eurozone,” he explained.

“If the Eurozone is able to control its own crisis, the recession will be relatively mild.

“But if the situation in the Eurozone becomes disorderly, with defaults by a number of countries, and [there is ] a disorderly exit of a number of members of the Eurozone, and eventually a break up, that shock could be as large, if not larger, than the disorderly collapse of Lehmann [Brothers] in the fall of 2008.”

He also mooted a “hard landing” for China’s economy in the not too distant future because of its “unsustainable model” based on significant over investment, which he said now makes up almost 50 per cent of the nation’s GDP.

“Over investment booms during the last 60 years have resulted in a hard landing for that economy,” he said.

He added that China’s massive growth will stall by 2013-14, increasing the chances of a hard landing.

Two rounds of thunderous applause greeted Professor Roubini at the close of his 45 minute presentation to the diverse corporate audience on the first day of the Commonwealth Business Forum.

Mining magnate Gina Rinehart and well-regarded deal-maker and Commonwealth Business Council member, Mark Barnaba were among the throng of business-minded attendees listening attentively to the speech from the man who predicted the global financial crisis two years prior to the fallout.

Even Dr Mohan Kaul, the boss of the Commonwealth Business Council which oversees the Forum, was impressed by the quality of Professor Roubini’s interpretation and forecast of global economic factors.

“Wow,” Dr Kaul said.

“What a speech!”

One member of the audience who wished to remain unidentified said he was blown away by the pace at which the economist delivered his dire predictions.

“He hardly even took a breath,” he said.


  1. It will be interesting to see if Australia makes any changes in policy prior to a collapse in China? Or even after. Australia is dependant on exports to China so a hard landing there will filter through quite quickly to Australian GDP.

  2. Those exports are in raw materials, mining, however, and these put upward pressure on the currency. Internally, if you've been following Steve Keen, they are dealing with a housing bubble.

  3. Yes Australia has had a spectacular property bubble and it is very highly leveraged. It is a problem that is waiting to happen.