(November 16, 2012) — Nouriel Roubini, one of the world’s top economic forecasters, has praised the recent actions by the European Central Bank (ECB) in tackling the Eurozone crisis, but warned that 2013 still presented danger on many fronts.
In an interview with Bloomberg TV in Turkey, the so-called Dr Doom said actions taken by the ECB had significantly helped the region’s struggling economy. He implied, however, that these actions had taken rather too long as leaders had failed to realise the severity of the economic situation. It was announced this week that the Eurozone had slipped back into recession.
“I fear that the recession in the Eurozone, especially in the periphery – the countries that are in trouble, Greece, Ireland, Portugal, Italy, Spain, Cyprus and so on, may continue into 2013 and beyond,” said Roubini.
He cited “front-loaded fiscal austerity”, which he claimed was recessionary, and the value of the euro, which remained too strong for the periphery to regain competitiveness. He also said there was a credit crunch occurring in the periphery as the countries’ banks did not have enough capital to be able to lend to businesses.
However, Roubini cited “rays of hope” in the Eurozone.
“The ECB has taken a more active role, trying to limit the tail risks with the new Outright Monetary Transactions (OMT) programme. Secondly there is this new pot of money, the European Stability Mechanism (ESM) – €500 billion – that can help the countries in trouble. Three, now the Europeans are talking about a political union, a banking union, a fiscal union, an economic union – it’s easier said than done, but at least they are having to discuss plans that are leading in that direction.”
Elsewhere there are still dark clouds on the horizon, the economist warned. Roubini said unrest in the Middle East might not turn into full-scale war, but the threat of it happening could serve to push up oil prices and damage the world economy.
He added that he believed politicians in the United States would act together to avoid the so-called fiscal cliff, but there would still be a fiscal drag on the world’s largest economy that would be equivalent to 1.5% of its GDP.
Roubini concluded that his baseline scenario was not one of a “perfect storm”, but developed markets would see slow – and sometimes slower – growth and deep recessions for some emerging markets.
To watch the full interview, click here.