COVID-19: Leading economist warns of 10 years depression and debt

A client's passes her jewellery to a worker at the "Affide" pawn shop in Rome, Italy, May 13, 2020. Italian pawn shops have seen a sharp increase in the number of clients over the past few months, as Italians suffer the economic drawbacks of the rigid lockdown the government imposed to curb an outbreak of the coronavirus disease (COVID-19). Picture taken May 13, 2020. REUTERS/Cristiano Corvino

Economist Nouriel Roubini has warned of a prolonged downturn and sluggish recovery from the coronavirus.

Nicknamed Dr Doom for his gloomy predictions, Professor Roubini said there were some jobs that simply would not come back after the pandemic.

Even if the global economy recovered this year from the impact of the coronavirus, it would be “anaemic”.

He warned of “unprecedented” recession. Prof Roubini foresaw the financial crisis in 2008 before many others.

“During the global financial crisis it took about three years until output fell sharply,” he said from his home in New York.

“This time around it didn’t take three years, not even three months. In three weeks there was a freefall of every component.”

Drastic

Prof Roubini said any recovery will be in the shape of what economists call a “U”, or even “something closer to an L” – what he calls a “Greater Depression.”

A U-shaped recovery means that growth will fall and bottom out, and then pick up only after a prolonged period of slow or no growth.

An L shaped recovery is even more drastic – falling sharply and staying there for an extended period of time.

That’s because of how many jobs have been lost in both rich and poor countries as a result of massive lockdowns to combat the virus.

“These jobs that are gone are going to come back only in part, with lower wages, no benefits, part-time,” he said.

“There will be even more insecurity of jobs and income and wages for the average working person.”

Bouncing back?

His warning comes as the number of coronavirus cases globally tops 5 million, with many countries seeing a second wave of infections and struggling to reopen their economies – a key factor in whether economic growth can bounce back quickly.

“You can open the stores but the question is whether they’re going to come back,” he said. “Most of the shopping centres in China are still empty. Half of the flights aren’t there. German shops are open but who wants to go and shop?”

Emerging Asia would see better growth than “other advanced economies,” he said.

But there would be a greater split between the US and China, and many Asian countries would be forced to choose between the two superpowers.

“Each one of them is going to say to the rest of the world, either you are with us or against us,” he says. “Either you use my AI systems, my 5G, my technologies, my robotics. Or you are using the one of my rival’s. Therefore there is going to be a more divided world.”

Prof Roubini’s moniker of Dr Doom was earned after he was famously and consistently negative on the global economy’s prospects – even as the US entered a stellar decade of stock market returns.

When asked whether holding a negative position for so long meant that at some point he would almost certainly be right, he told me he prefers the name Dr Realist, to Dr Doom.

“When everyone said that China was going to have a hard landing in 2015, I said it will be bumpy,” he told me. “I’ve actually been more optimistic than Wall Street was. The people who say I’m a broken clock that is right twice a day have not followed me.”

– BBC

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