A “long and ugly” global recession that might begin at the end of this year and last well into 2022 has been predicted by economist Nouriel Roubini, who is well recognised for correctly predicting the financial crisis the world experienced in 2008. He also anticipated a significant drop in the S&P 500. His warning comes in the wake of the Covid-19 outbreak and Russia’s invasion of Ukraine, along with high inflation rates in the US and all other major economies.
The American economist Nouriel Roubini was born on March 29, 1958, in Iran. He is chairman of the economic consulting company Roubini Macro Associates LLC and a professor at the Stern School of Business at New York University.
He was born in Turkey, the son of Iranian Jews, and spent his formative years in Italy. After earning a doctorate in international economics from Harvard University and a BA in political economics from Bocconi University in Milan, he joined the Yale faculty and worked as a visiting researcher and advisor at the Federal Reserve, the World Bank, the IMF, and the Bank of Israel.
His early research was largely concerned with developing markets. He served as a senior economist for the Council of Economic Advisers under President Bill Clinton before going on to the US Treasury Department to serve as a senior advisor to Timothy Geithner, who served as Treasury Secretary under President Barack Obama.
Roubini’s prediction for 2022 recession
Roubini, also known as “Dr. Doom,” gained notoriety for correctly predicting the 2007–2008 financial crisis and stating that people should anticipate massive government and corporate debt ratios. He predicted that numerous zombie nations, shadow banks, banks, corporations, zombie homes, and zombie institutions will perish.
Because of the high levels of debt on the global stage, Roubini cautions that a recession will force the markets to fall, making it impossible for the Federal Reserve to maintain a target inflation rate of 2%.
According to Roubini, the current economic slowdown might begin at the end of 2022 and last through the end of 2023. Numerous negative consequences might be witnessed at this moment on the world market. Roubini added that the global market might experience a significant fall. In addition to this, the S&P 500 can decline by around 30%. It may drop by up to 40% if the scenario gets worse.
For the Federal Reserve, maintaining a 2% inflation rate without a harsh landing will be “mission impossible,” according to Roubini, who has warned throughout bull and down markets that high levels of global debt will cause stocks to decline. He anticipates a rate increase of 75 basis points at the upcoming meeting and 50 basis points in November and December. The Fed funds rate would consequently range between 4% and 4.25% at the end of the year.
But he said that if inflation remains persistent, particularly in wages and the service industry, the Fed “probably won’t have a choice” but to continue raising rates, with funds rates heading toward 5%. Additionally, negative supply shocks from the pandemic, the conflict in Russia and Ukraine, and China’s zero-tolerance stance on COVID will increase costs and slow economic growth.
This will make it challenging for the Fed to achieve its present “growth recession” goal, which is to contain inflation over a lengthy period of weak growth and rising unemployment.
He added that the ongoing crisis between Russia and Ukraine, supply shocks brought on by the epidemic, and China’s zero-tolerance policy on COVID-19 might all slow economic growth.
Since hedge funds, private equity, and credit funds will be the hardest hit by the anticipated recession, he advises investors to hold onto their cash and own few stocks.