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July 23, 2012 at 08:25 AM
Analysts refuse to accept what’s right in front of them. That’s the latest economic take from the famed economist Nouriel Roubini. While “the risk of a disorderly crisis in the eurozone is well recognized,” he wrote, that’s not so in the United States.
“For the last three years, the consensus has been that the U.S. economy was on the verge of a robust and self-sustaining recovery that would restore above-potential growth,” Roubini wrote on Friday for the Project Syndicate website in a piece called “American Pie in the Sky.” “That turned out to be wrong, as a painful process of balance-sheet deleveraging—reflecting excessive private-sector debt, and then its carryover to the public sector—implies that the recovery will remain, at best, below-trend for many years to come.”
Even this year, he continued, the consensus got it wrong, expecting a recovery to above-trend annual GDP growth—faster than 3%. But the first-half growth rate looks set to come in closer to 1.5% at best, even below 2011’s dismal 1.7%. He called the notion that falling oil prices, rising home prices and stronger auto sales and manufacturing would fuel above-trend 2013 growth a “fairy tale.”
He then launched into five reasons he believes growth will further slow in the second half of 2012 and be even lower in 2013—what he calls “close to stall speed.”
1) “Growth in the second quarter has decelerated from a mediocre 1.8% in January-March, as job creation—averaging 70,000 a month—fell sharply.”
2) Expectations of the “fiscal cliff”—automatic tax increases and spending cuts set for the end of this year—will keep spending and growth lower through the second half of 2012, he writes.
4) “Private consumption growth in the last few quarters does not reflect growth in real wages (which are actually falling),” he wrote. “Rather, growth in disposable income (and thus in consumption) has been sustained since last year by another $1.4 trillion in tax cuts and extended transfer payments, implying another $1.4 trillion of public debt.”