Emerging market instability top risk in 2013: Eurasia's Bremmer

NEW YORK Tue Jan 15, 2013 1:51pm EST

1 of 5. Chairman of Roubini Global Economics and New York University's Stern School of Business economics professor Nouriel Roubini (L) and President of political risk firm Eurasia Group Ian Bremmer speak at a Thomson Reuters Newsmaker event in New York January 14, 2013.

Credit: Reuters/Keith Bedford

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NEW YORK (Reuters) - Political instability in emerging markets, led by China, will be one of the biggest risks for markets in 2013, Ian Bremmer, president of political risk firm Eurasia Group, said on Monday.

"I think that emerging markets in general, the level of political instability, is underpriced for 2013," Bremmer said at a Thomson Reuters Newsmaker event in New York.

China, the world's second-largest economy, is high on the lists of worries, he said, citing ongoing tensions with Japan and uncertainty about the investment atmosphere.

"The level of uncertainty around investing in China is many magnitudes greater than it is in the United States, but no one ever says they're on the sidelines because of uncertainty in China," Bremmer said.

Since the 2008 financial crisis, large developing economies, including China, Brazil and India, have increasingly driven global growth, with some expanding by as much as 10 percent a year.

But those rates started to slow in 2012 - China was expected to have grown by less than 8 percent last year and economists expect Brazil to expand at just more than 3 percent next year.

With global growth rates likely to be suppressed for years to come, "people will have to stop fetishizing growth and pay attention to places that are more resilient," he said. "That really does not benefit China" and other emerging markets, Bremmer said.

Countries must demonstrate continued political and economic development if they are to remain attractive to global investors, Bremmer said.

"A lot of times, they don't have that," he said, citing Russia, Ukraine and Venezuela as examples. "That's a real problem."

CHINA SLOWDOWN

Nouriel Roubini, chairman of Roubini Global Economics and an economics professor at New York University's Stern School of Business, added that China was the biggest risk for the second half, when he said growth could slow to about 6 percent - not a hard landing but a slowdown that could hurt global growth.

"It's not a hard landing, but close enough," he said. "I still worry about a hard landing in China."

"My fear is the new leadership is very cautious and will carry out reforms much more slowly than necessary," Roubini said, adding that rapid stimulus spending could turn into an investment bust in the second half of 2013.

China's annual economic growth is expected to have quickened to 7.8 percent in the fourth quarter, a Reuters poll showed, after seven quarters of weaker expansion.

U.S. RISKS

But Roubini said risks in the advanced world should not be overlooked, either. "In absolute terms, the United States has significant fiscal, growth and unemployment problems," he said.

A modest increase in hiring and a steady rise in housing prices have sparked hope that the U.S. economy was gaining traction in late 2012 despite weak business confidence and falling demand from overseas. Most economists expect the world's biggest economy to grow at about 2 percent this year.

But Roubini said U.S. lawmakers' inability to strike a grand bargain that achieves reform of entitlement and spending and long-term deficit reduction could keep growth around 1.6 percent.

Both Bremmer and Roubini said they expected U.S. lawmakers to "kick the can" again when it comes to long-term fixes to the tax system, entitlement spending and deficit reduction.

Congress struck a deal to raise taxes on the wealthiest Americans on New Year's Day but put off important decisions on spending until the spring. Republicans are also threatening not to raise the government's legal borrowing limit unless the White House commits to deep spending cuts.

But Bremmer said the U.S. dollar's role as the world's safe haven and the country's economic resilience should ensure that it remains a favored destination for global investment.

(Reporting by Steven C. Johnson and Jennifer Ablan; Editing by Diane Craft and Lisa Shumaker)

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Comments (1)
MikeBarnett wrote:
Bremmer and Roubini are completely wrong. The political deadlock in the US is the greatest threat with another downgrade of US debt likely in 2013 according to Fitch. The World Bank has pointed out that world growth continues to be held back by the US and EU. China has a growth rate over three times that of the US; Africa and Brazil are beating the US and EU. Germany has fallen into recession in the 4th quarter.

Too many people in the West worship political democracy without recognizing the potential pitfalls of stalemate and extremism. Hitler became chancellor after the Nazis became the biggest party in Germany. China has a technocracy in which the leaders must have degrees in science, engineering, technology, business, or economics.

Hu Jintao has a degree in hydraulic engineering, and he developed a massive irrigation project in 2001 that should give China a dominant position over the world’s food supply by 2020 to 2025. China sold food to the US in 2011 and 2012 after fires, droughts, and heat reduced US food supplies. Xi Jinping has a degree in chemical engineering, and he has developed a 22 point, five year plan to deal with China’s pollution problems that started in late 2011 and should continue through 2016 when a second five year plan for pollution will probably start. Serious results should be visible by mid-2014, and improvements will continue through 2021. In Presidents Hu and Xi, China chose men who had the degrees for the major projects of their presidencies instead of the lawyers, preachers, and propagandists who led the West into endless crises.

Jan 15, 2013 7:02pm EST  --  Report as abuse
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