Roubini Says 2010 Outlook Remains “Very Dismal”

Despite the initial fireworks touched off by a series of proposals to tighten global banking regulations, the 2010 version of the Davos World Economic Forum ended on a muted note. Even the latest growth report indicating that the US economy expanded by 5.7 percent in the fourth quarter of 2009, failed to generate a summit-ending “feel good” moment. Oh sure, officials went through the motions of touting the larger-then-expected growth as a sign that the US – and by extension – the world economy was back on track, but few believed this marked a true turning point.

As usual, Nouriel Roubini could be counted on to find a dark cloud in any silver lining, as he reflected on the growth numbers.

“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” he said in an interview from Davos.

Roubini – a professor of Economics at the Stern School of Business who has also worked with the Federal Reserve and the IMF – rose to prominence when he went against conventional thinking and predicted that the US housing bubble would lead to a global recession. True to form, Roubini dismissed these latest growth figures as evidence of only “mediocre” growth that the economy will have difficulty sustaining.

In the interview, Roubini justified his pessimistic outlook by pointing out that much of the growth is actually the result of companies building up their inventories after nearly two years of reducing overhead. He also cautioned that most of this growth was only possible because of the government’s stimulus spending and once the government starts to withdraw the spending, growth will slow accordingly.

Roubini points to continuing high unemployment as a leading factor limiting growth opportunities in 2010. Even the Federal Reserve has issued warnings that unemployment will likely remain above 10 percent for the remainder of the year and until greater employment opportunities return, consumer spending will remain constrained. This is the Catch-22 facing the American economy and as Roubini succinctly noted, even if the US is not “technically” in a recession, it will still “feel like a recession”.

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