The Forecast for the Rest of 2010: Not Good, Says Economist Roubini

Noted economist Nouriel Roubini spoke recently at the Ambrosette Forum economics conference in Italy. Roubini is known as “Dr. Doom” and “Roubini the Realist” in certain circles. What’s the economic forecast for the rest of 2010? According to Roubini, it’s pretty bleak.

He said that there’s a 40 percent chance of a “double dip” recession for the second half of 2010. “Double dip” means that there’s a recession, some recovery, and then another recession. This prediction is nothing new; many other economists have been forecasting this as well because of the high unemployment and faltering housing market. Polls show that a majority of Americans also see a double dip coming.

Here is what Dr. Doom has predicted:

– There will be a downturn in markets, which will hurt the bond, equity and credit markets.

– We’ll see no job growth in the private sector.

– Consumption, exports and housing will remain weak.

– Both corporate and consumer debt will worsen.

– The residential and commercial property markets will continue to slump.

– Worst of all, many small and medium-sized banks will fail. Among a critical list of 800 banks that are at risk now, over half will go belly up.

Roubini used a term we’ve all gotten familiar with in recent years—the “new normal.” He said that these trends are all things we’ll have to get used to. Deleveraging (which means dumping bad debt) is a necessary step to getting some growth going.

According to Roubini, whether we double dip or not, it will feel like a recession. In his words, there will be “no more cash for clunkers” and “headwinds will become tailwinds.” He predicted some growth, but not the kind we’re used to.

As the U.S. economy sags, the whole world will feel it. The slowdown in the U.S. will drastically affect the economies of China, Japan and Europe. In spite of predictions by economists in the 2008 recession that the economies of Asia and Europe would soldier on despite America’s economic problems, their stocks suffered much worse, and Roubini predicts that we’ll see the same thing here.

Among European countries, we can expect to see the most growth in Germany, which is doing quite well in spite of things. Roubini predicted seven percent growth in China. He also predicted that Brazil’s economy will outgrow China’s. Brazil, and other countries that are domestically focused and rely little on foreign markets, will not be so affected.

The solution? Roubini noted that government policy makers are running out of ideas. What’s needed, he said, is fiscal consolidation, and not more debt. He called it a “liquidity trap” and said that we have “insolvency problems.”

As we all know, it’s always darkest before the dawn. Roubini and other economists are making gloomy predictions about the rest of the year, but all of this deleveraging and stagnation is necessary to get the economy back on its feet. Let’s just hope the leaders of government and industry can control themselves and keep from piling on more debt.