Roubini: "U-shaped" recovery is possible

CERNOBBIO, Italy (Reuters) - Nouriel Roubini, a leading economist who predicted the scale of global financial troubles, said a U-shaped recovery is possible, with leading economies undeperforming perhaps for 3 years.

Nouriel Roubini, RGE Monitor Chairman, speaks at the Reuters 2009 Investment Outlook Summit in New York in this June 16, 2009 file photo. REUTERS/Shannon Stapleton

He said there is also an increasing risk of a “double-dip” scenario, however.

“I believe that the basic scenario is going to be one of a U-shaped economic recovery where growth is going to remain below trend ... especially for the advanced economies, for at least 2 or 3 years,” he said at a news conference here.

“Within that U scenario I also see a small probability, but a rising probability, that if we don’t get the exit strategy right we could end up with a relapse in growth ... a double-dip recession,” he added.

Roubini, a professor at New York University’s Stern School of Business, said he was concerned economies which save a lot, such as China, Japan and Germany, might not boost consumption enough to compensate for any fall in demand from “overspenders” such as the United States and Britain.

“If U.S. consumers consume less, then for the global economy to grow at its potential rate, other countries that are saving too much will have to save less and consume more,” he said.

“My concern is that for a number or reasons ... (it is unlikely that) countries like China, other emerging markets in Asia, Japan, Germany in Europe, will have a significant increase in the consumption rate and a reduction in the savings rate.”

Roubini said he thought central banks should pay more attention to asset prices when deciding interest rate policy and encouraged U.S. Federal Reserve Chairman Ben Bernanke to follow this route.

“I think that asset prices, asset bubbles should become much more important in the setting of interest rates, in addition to concerns about inflation and growth. (Bernanke’s) views until now have been different. Hopefully this crisis has taught a lesson.”

Roubini’s outlook remains downbeat, however.

“I think that too many people are hopeful that everything is fine and unfortunately the road ahead is going to be at best bumpy, if not worse,” he said.

Reporting by Jo Winterbottom; editing by Chris Pizzey