Nouriel Roubini sees the global economy as a four-engine jetliner with only one operational engine — the “Anglosphere” of the U.S. and the U.K.
Even that one good engine could find itself in trouble from the effects of the other sputtering engines — the Eurozone, Japan and emerging markets — since the possibility is that “the less the U.S. will be able to decouple from the funk everywhere else, even if domestic demand seems robust.”
The reason, writes the NYU professor and chairman of Roubini Global Economics on Project Syndicate, is that “weakness in the rest of the world implies a stronger dollar, which will invariably weaken U.S. growth.”
More bad news is likely if weakness in the other three engines deepens while the dollar rises and if the Federal Reserve does not wait to raise rates “until the global economic weather clears.”
Writing just before the midterm elections in the U.S., Roubini also worries that Republican control of the Senate would mean more gridlock in Washington, which would “prevent the passage of important structural reforms that the U.S. needs to boost growth.”
As for the markets, he notes the growth in volatility and declares that “a correction is still underway,” and that some recent bad macro news — which can be good for markets — is, in the present case, bad for the markets, because of the perception of policy inertia.
Oil prices are low due to increased production, especially in the U.S., but also due to slowing demand from Europe and emerging markets. And while cheaper oil is good news for manufacturers and households, cheaper prices “hurt energy exporters and their spending,” and their persistence could “induce a fall in investment in new capacity, further undermining global demand.”
Roubini recites a long list of trouble for the global economy: slowing growth in emerging markets and Europe being “one shock away from outright deflation and another bout of recession.”