‘Tis becoming the season for 2013 economic outlooks, and NYU professor and economist Nouriel Roubini doesn’t like what he sees. Forget all the talk of the fiscal cliff and chances of a possible recession in the U.S. There are already enough smaller issues “around the periphery” to fuel market angst, regardless of what might happen with the more obvious politically laden fiscal issues in Washington.
Starting with the advanced countries, Roubini writes in a post to the Project Syndicate website on Tuesday that “the euro zone recession has spread from the periphery to the core, with France entering recession and Germany facing a double whammy of slowing growth in one major export market (China/Asia) and outright contraction in others (southern Europe). Economic growth in the United States has remained anemic, at 1.5%-2% for most of the year, and Japan is lapsing into a new recession.”
The United Kingdom, like the euro zone, has already endured a double-dip recession, he adds, and now “even strong commodity exporters--Canada, the Nordic countries, and Australia--are slowing in the face of headwinds from the US, Europe and China.”
Meanwhile, Roubini notes that emerging-market economies–including all of the BRICs (Brazil, Russia, India and China) and other major EM countries like Argentina, Turkey and South Africa--also saw their economies slow so far in 2012.
“China’s slowdown may be stabilized for a few quarters, given the government’s latest fiscal, monetary and credit injection; but this stimulus will only perpetuate the country’s unsustainable growth model, one based on too much fixed investment and savings and too little private consumption.”
In 2013, he warns downside risks to global growth will be “exacerbated by the spread of fiscal austerity to most advanced economies.”
A global market correction seems underway, he argues, owing to the poor growth outlook. At the same time, the eurozone crisis remains unresolved, despite the European Central Bank’s bold actions and talk of banking, fiscal, economic and political union. Specifically, Greece, Portugal, Spain and Italy are still at risk, while bailout fatigue pervades the eurozone core.
“Yet another reason for the correction is that valuations in stock markets are stretched," citing high PE ratios and "slackening" company EPS that "will be subject to further negative surprises as growth and inflation remain low. With uncertainty, volatility and tail risks on the rise again, the correction could accelerate quickly.”
He concludes that as consumers, firms and investors become more cautious and risk-averse, the equity-market rally of the second half of 2012 has crested. "Given the seriousness of the downside risks to growth in advanced and emerging economies alike, the correction could be a bellwether of worse to come for the global economy and financial markets in 2013.”