Global Economy in Danger of Backslide?
The global economy is bottoming out, but the recovery could be slow and fraught with the risk of backsliding into another downturn.
That's what Nouriel Roubini, an economics professor at Stern School of Business at NYU, wrote in a Financial Times op-ed Sunday. In forecasting just what sort of recovery the world will embark on – a quicker "V-shape" or slower "U-shape" – Roubini raises the prospects of a possible "W-shaped" rebound, which will see near-term growth followed by another recession.
What might cause this? Roubini writes that the exorbitant deficits countries like the U.S. are currently running up pose a dilemma for lawmakers. They could raise taxes and cut spending, but that might squelch the recovery before it really gets a chance to begin. They could also ignore deficits and risk a recovery-suppressing bout of inflation.
There's also the fact that food and energy price are on the rise – at a rate higher than the economy warrants, Roubini writes – and there's reason to fear they may get even higher. With a lot of extra cash on hand, thanks to taxpayer-financed bailouts, traders might speculate on commodities (remember when oil topped $145 a barrel?). But a spike of that amount could lead to a similarly prodigious shock to the world economy.
In all, Roubini sees a "U-shaped" recovery, meaning slow growth that could take a couple of years. But the dangers of a "double-dip recession" are out there.
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