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Dr. Doom Sees Double-Dip Recession Risk, in Remarks Down Under - Real Time Economics - WSJ

By WSJ Staff

By Elisabeth Behrmann

Advanced economies are showing signs of bottoming in response to massive financial and fiscal government stimulus but the global economy will stay in a recession until the end of the year, U.S. economist Nouriel Roubini said Monday in Kalgoorlie, Australia.
roubini20090803_E_20090803035728.jpgBloomberg News/Landov
Nouriel Roubini delivers the keynote address at the Diggers and Dealers Mining Forum in Kalgoorlie, Australia, on Monday

His comments came a day after Alan Greenspan said in an ABC interview that he is “pretty sure we’ve already seen the bottom” and that “Collapse now, I think, is off the table.”

In Roubini’s remarks, he predicted the global economy would contract by 2% in 2009, staying in a recession until the end of the year, but would grow by 2%-3% next year, he said.

That will offer a boon to commodity prices, which should trend higher from current levels but still run the risk of a correction should the global recovery surprise on the downside.

“In addition to the green shoots, we see worrying signs. There’s a risk of relapse, of a double-dip recession in the second half of next year,” Roubini said, tipping U.S. house prices to contract another 13% next year, on top of a drop in prices of 27% since their highs in 2006.

With the U.S. still the world’s largest economy by far, consumption trends will be key for the global recovery, and signs from labor markets and the outlook for consumer demand remained worrying, he said.

He said he expects U.S. unemployment to rise further to reach 11% next year - unemployment had reached 9.5% in June - and that, while the labor market continued to show signs of severe weakness, the U.S. consumer would remain ’shopped out’ and keen to increase the rate of household savings.

With the global economy tipped to recover next year, commodity prices should benefit and trend higher. However, there’s a risk of correction should that recovery surprise on the downside, while waning Chinese restocking and strategic inventory builds during the second half of this year should take some steam out of commodity markets. Turning to record levels of Chinese bank lending during the first half of this year, Roubini said he wasn’t concerned about a financial crisis on the scale of the U.S. crisis happening in China, but said that excessive liquidity was wasteful and ultimately damaging to the economy. The Chinese government’s stepping up bank lending was necessary but it’s time for the excessive lending to be scaled back, Roubini told reporters.

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