The world will suffer a “serious, long and ugly” recession at the end of this year and that could last throughout 2023as well as a collapse of the shares up to 40%.
Who is behind these forecasts is the prominent economist Nouriel Roubini, nicknamed ‘Doctor Doom’ (Doctor Catastrophe) after correctly predicting the global financial crisis of 2008.
Roubini, president and executive director of Roubini Macro Associates, also points out who will be the most affected this time, anticipates the “death” of the “zombie” institutions and countries, observes severe stagflation and rules out fiscal stimulus solutions.
As rates rise and debt servicing costs rise, “many zombie institutions, zombie households, corporations, banks, shadow banks and zombie countries are going to die. So we will see who is swimming naked,” illustrates the economist, who highlights the large debt ratios of companies and governments.
Furthermore, with the arrival of the recession no need to wait for fiscal stimulus remedies as governments with too much debt “are running out of fiscal bullets” and high inflation would imply that “if you do a fiscal stimulus, you are overheating aggregate demand”, analyzes Nouriel Roubini and collects Bloomberg.
All this would cause, according to the economist, a stagflation as in the 1970s and massive debt distress as in the global financial crisis: “It’s not going to be a short and shallow recession; it’s going to be serious, long and ugly”.
This would hit the US and the whole world throughout 2023, depending on the severity of the supply crises and financial difficulties, and would have different victims compared to the 2008 crisis, when it mainly affected households and banks.
On this occasion, shadow companies and bankssuch as hedge funds, private equity funds, and credit funds, “they are going to implode”he warns.
Finally, Roubini refers to the United States, where the Federal Reserve has implemented several interest rate hikes this year to try fight inflationincluding the rise this week to the highest level since 2008.
‘Dr. Doom’ Roubini has warned that global debt levels will drag down equities, noting that achieving a 2% inflation rate without a ‘hard landing’ will be “mission impossible” for the Federal Reserve, which “probably has no choice.” “to go higher, until fund rates approach 5%.
To this would be added the impact of the pandemic, of the Chinese policy of zero tolerance against COVID-19 and of the Russian invasion in Ukrainewhich will imply higher costs and lower economic growth, he points out.