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December 17, 2012 at 06:10 AM
Nouriel Roubini said Friday “there’s a highly likely chance we’re going to go over the cliff. If we do so, the market reaction is going to force the two sides to reach an agreement.”
Roubini, appearing on “Bloomberg Surveillance,” said that U.S. growth will be “barely 1.7%” in 2013.
On whether he’s bullish on the United States:
“In the long term, I think that the fundamentals of the U.S. are a lot stronger than other advanced countries. In the short run I think we will have another year of very anemic economic growth. Next year we will have barely 1.7% including a modest amount of fiscal drag and lots of tail risk could make it worse in the U.S–bigger fiscal cliff, the eurozone crisis, a Chinese hard landing, maybe tensions will raise oil prices in the Middle East–so the downside scenario is actually having a meaningful probability.”
On whether he’s convinced there’s a U.S. housing recovery:
“I do believe there is a housing recovery but I think that those that are more optimistic about it are going to be proven wrong next year. Housing can increase say 10% to 15% in real terms of residential investment but at the peak it was 6% of GDP, right now it’s only 2% of GDP, so the direct effect on GDP growth is going to be very small.”
On what he’s encouraged by in the U.S. economy:
“There are some positives. There’s a housing recovery, shale gas revaluation, some re-shoring of manufacturing, some job creation, QE3 is going to help. But even in a scenario where we avoid the cliff, we expect there will be a fiscal adjustment of 1.4% of GDP next year … my best scenario for the U.S. is 1.7% growth for next year …”
On what legislative process he’d like to see in Washington:
“Unfortunately, in the U.S. we have a system of balance of powers between executive and legislative and even the courts and right now we have to make tough choices and we have gridlock. Republicans are vetoing tax increases and Democrats don’t want entitlement reform. People talk about the cliff, but there are several things. There’s the issue about the budget in 2013, then there will be the debt ceiling debate, another debate about medium term fiscal consolidation, within that we will have a debate about fundamental tax reform and then we have entitlement reform.”
