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Wednesday, 12 May 2010

Roubini: Happy Days Are Over, Economy to Slow in Second Half of Year

Nouriel "Dr. Doom" Roubini sounds less cataclysmic than he did two years ago, when he was one of the only folks warning of impending disaster, but he still doesn't come bearing good news.

A professor of at NYU and economist at Roubini Global Economics, Roubini says that the U.S. economic recovery will slow in the second half of the year, as consumers nurse their wounds and the peak spending from the stimulus wears off.

The culprit?

Final sales, which grew at less than a 2% rate in the last couple of quarters. What drove strong GDP growth in the last few quarters was inventory adjustments (companies replenishing inventory they had sold down during the recession). For the economy to sustain this rate of growth, consumer spending now needs to take over, and Roubini doesn't think it will.

Further, the impact of the government's stimulus on GDP growth will peak this quarter, and its contribution to growth will decline from here on in. With the public fed up with bailouts and concerned about debt and deficits, orchestrating additional stimulus would be difficult if not impossible. So help won't be on the the way.

Perhaps worst of all, the employment picture will stay bleak. Even if we add 300,000 a month forever, Roubini says, it will still take us years to recover all the jobs we've lost since the start of the recession.

And as if this weren't bad enough, Roubini thinks Europe is facing a double-dip recession.

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