'Long & Ugly Global Recession In 2022 & 2023,' Warns Economist Who Predicted The 2008 Financial Crisis

Economist Nouriel Roubini, who had correctly predicted the 2008 financial crisis, has warned of a global recession. He sees a ¡°long and ugly" global recession, including in the US, by the end of 2022. And it could last all of 2023.

¡°Even in a plain vanilla recession, the S&P 500 can fall by 30%," said 54-year-old Roubini, Chairman and CEO of Roubini Macro Associates, in an interview with Bloomberg earlier this week. In ¡°a real hard landing," he expects the stock market index could fall 40%.

For the uninitiated, the Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on exchanges in the United States.

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Roubini had predicted the 2008 financial crisis in 2006

His prescience on the housing bubble crash of 2007 to 2008 had earned him the nickname Dr Doom, saying that those expecting a shallow US recession should be looking at the large debt ratios of corporations and governments. As rates rise and debt servicing costs increase, ¡°many zombie institutions, zombie households, corporates, banks, shadow banks and zombie countries are going to die," he said, as per Bloomberg.

¡°So we¡¯ll see who¡¯s swimming naked," he said. Roubini has also warned that global debt levels will drag down markets, and said that achieving a 2% inflation rate without a hard landing is going to be ¡°mission impossible" for the US Central Bank Federal Reserve.

And once the world is in recession, Roubini doesn¡¯t expect fiscal stimulus remedies as governments with too much debt are ¡°running out of fiscal bullets." High inflation would also mean that ¡°if you do fiscal stimulus, you¡¯re overheating the aggregate demand."

As a result, the economist sees stagflation like in the 1970s and massive debt distress as in the global financial crisis. Stagflation refers to the simultaneous appearance of slow growth, high unemployment, and rising prices in the economy. Once thought by economists to be impossible, stagflation has occurred repeatedly in the developed world since the 1970s. Policy solutions for slow growth tend to worsen inflation and vice versa.

¡°It¡¯s not going to be a short and shallow recession, it¡¯s going to be severe, long and ugly," the 54-year-old said.

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Roubini expects the US and global recession to last all of 2023, depending on how severe the supply shocks and financial distress will be. During the 2008 crisis, households and banks took the hardest hits. This time around, he said corporations, and shadow banks, such as hedge funds, private equity and credit funds, ¡°are going to implode"

Also Read: India Has Zero Probability Of Slipping Into Recession, Reveals Survey

His Advice For Investors

As per the report, the economist¡¯s advice for investors is, ¡°You have to be light on equities and have more cash." Though cash is eroded by inflation, its nominal value stays at zero, ¡°while equities and other assets can fall by 10%, 20%, 30%." In fixed income, he recommends staying away from long-duration bonds and adding inflation protection from short-term treasuries or inflation index bonds like TIPS.

As per the report, in Roubini¡¯s new book, ¡°Megathreats," he identifies 11 medium-term negative supply shocks that reduce potential growth by increasing the cost of production. Those include de-globalization and protectionism, relocating of manufacturing from China and Asia to Europe and the US, ageing of the population in advanced economies and emerging markets, migration restrictions, decoupling between the US and China, global climate change and recurring pandemics.

¡°It¡¯s only a matter of time until we¡¯re going to get the next nasty pandemic," the economist said.

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