Roubini Says That Markets Are Underestimating Risks

The world’s economic, financial, and geopolitical risks are shifting. Some risks now have a lower probability – even if they are not fully extinguished. Others are becoming more likely and important.

A year or two ago, six main risks stood at centre stage:

• A eurozone breakup (including a Greek exit and loss of access to capital markets for Italy and/or Spain).

• A fiscal crisis in the United States (owing to further political fights over the debt ceiling and another government shutdown).

• A public-debt crisis in Japan (as the combination of recession, deflation, and high deficits drove up the debt/GDP ratio).

• Deflation in many advanced economies.

• War between Israel and Iran over alleged Iranian nuclear proliferation.

• A wider breakdown of regional order in the Middle East.

These risks have now been reduced. Thanks to European Central Bank president Mario Draghi’s “whatever it takes” speech, new financial facilities to stabilise distressed sovereign debtors, and the beginning of a banking union, the eurozone is no longer on the verge of collapse. In the US, President Barack Obama and Congressional Republicans have for now agreed on a truce to avoid the threat of another government shutdown over the need to raise the debt ceiling.

In Japan, the first two “arrows” of prime minister Shinzo Abe’s economic strategy – monetary easing and fiscal expansion – have boosted growth and stopped deflation. Now the third arrow of “Abenomics” – structural reforms – together with the start of long-term fiscal consolidation, could lead to debt stabilisation (though the economic impact of the coming consumption-tax hike is uncertain).

For the full article visit The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza