Dr Doom sees more gloom
By Daniel at 21 January, 2010, 10:06 pm
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Global equity markets are heading for a correction in the second half of this year in the absence of a fundamental economic recovery, according to economist Nouriel Roubini.
The New York University professor, who predicted the financial crisis, said failure in emerging markets to restrain asset price bubbles fueled by loose monetary policies may lead to an “unraveling and a significant correction of asset prices which will be damaging to global and regional economic growth.”
“If I’m correct, by the second half of the year, there’s going to be a slowdown of growth in the United States, Europe and Japan. That could be the beginning of a market correction because the macroeconomic news is going to surprise on the downside,” he said at the Asian Financial Forum in Hong Kong.
“The real economy is gradually recovering but since March asset prices have gone through the roof.”
Roubini, dubbed “Dr Doom,” said the rally in asset prices occurred faster than the market had anticipated and was driven by “easy money” released by government stimulus packages. “The path of exit is very narrow and the risk of a mistake is significant.” Emerging markets are set to introduce tightening policies earlier than developed countries. China and India, which witnessed strong economic growth followed by supportive government policies, are already feeling economic overheating, Roubini said.
Advanced markets may face inflation from 2012 as commodity prices may rise on a weaker US dollar. In a surprise move this month, China raised banks’ reserve requirement ratio, signaling the start of stimulus withdrawal.
“Those policy actions, even if they lead to a short-term negative market reaction, are necessary, because if you let the bubble grow then the policy tightening in the second half of the year will have to be even more severe,” he said.
“Therefore it’s better to face some of the pain earlier than later to avoid excessive overheating.”
http://www.thestandard.com.hk/news_detail.asp?pp_cat=5&art_id=93513&sid=26786491&con_type=1
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
No comments yet.