- The novel coronavirus will ravage the global economy and could plunge it into a historic depression, economist Nouriel Roubini warned in a Project Syndicate column on Tuesday.
- “The best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis,” said the professor nicknamed “Dr. Doom” for his pessimistic predictions.
- Roubini argued sweeping public-health measures, unconventional monetary policy, and massive government spending will be needed for the economy to bounce back in the fourth quarter.
- While authorities salvaged the global economy after the 2008 financial crash, Roubini said, “We may not be so lucky this time.”
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The novel coronavirus will devastate the global economy, and failure to rein it in risks a worse downturn than the Great Depression, economist Nouriel Roubini warned in a Project Syndicate column on Tuesday.
“The best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis,” the professor at New York University’s Stern School of Business said.
Roubini, who is nicknamed “Dr. Doom” for his pessimistic predictions, argued the pandemic’s fallout in three weeks has surpassed the economic toll of the financial crisis and the Great Depression over three years.
The US stock market has plunged more than 20% into bear territory, Goldman Sachs estimates jobless claims spiked to a record 2.2 million last week, and a slew of major banks predict a US recession and a global downturn in the coming months.
Flash surveys of purchasing managers in France, Germany, the UK, and the eurozone suggest combined manufacturing and services activity plummeted to record lows this month.
“Not even during the Great Depression and World War II did the bulk of economic activity literally shut down, as it has in China, the United States, and Europe today,” Roubini said in the Project Syndicate column.
The best-case scenario is a return to growth in the fourth quarter of this year, the economist said.
However, Roubini cautioned that a rebound would require three things:
1. The hardest-hit countries must conduct mass testing for COVID-19, enforce quarantines, lock down their populations, and roll out antivirals and other therapies “on a massive scale.”
2. Central banks “must continue to throw the kitchen sink of unconventional measures at the crisis,” going beyond zero or negative interest rates and asset purchases to extending credit facilities to businesses of all sizes.
3. Governments must engage in “massive fiscal stimulus,” making direct cash payments to households and running central-bank-funded budget deficits of 10% or higher.
Roubini warned that a swift recovery looks unlikely as public-health responses in the US and other countries have “fallen far short of what is needed,” and the stimulus package that Democratic and Republican senators are scuffling over is “neither large nor rapid enough.”
“The risk of a new Great Depression, worse than the original — a Greater Depression — is rising by the day,” he said in the Project Syndicate column.
The economist predicted that economies and markets will “continue their free fall” if coronavirus isn’t dealt with. He added that a recovery could stall this winter if the coronavirus mutates, therapies disappoint, government spending spikes inflation, or developing countries are unable to borrow enough in their own currencies.
Moreover, Roubini argued, the US presidential election and the nation’s disputes with China, Russia, Iran, and North Korea pose additional threats to global growth.
“This trifecta of risks — uncontained pandemics, insufficient economic-policy arsenals, and geopolitical white swans — will be enough to tip the global economy into persistent depression and a runaway financial-market meltdown,” he said.
“After the 2008 crash, a forceful (though delayed) response pulled the global economy back from the abyss,” Roubini added. “We may not be so lucky this time.”