Nouriel Roubini sees fives potential economic dangers coming our way in 2015, and believes that the combination of them could lead the global financial system into the perfect storm. The risks he outlines are: a repeat of the Eurozone crisis, a hard landing in China, a failure of Abenomics to reflate Japan, mounting geopolitical risks and global currency shock caused by the strong dollar.
Roubini sat down with Yahoo Finance to discuss some of these dangers and how they might play out.
Mounting geopolitical risks
One of the biggest surprises of 2014 is that geopolitical risks haven’t hurt markets. Roubini believes this is because central banks have been suppressing volatility, and while some banks will continue with this into 2015 the Federal Reserve and Bank of England are expected to exit their zero policy rates next year. Roubini sees conflicts becoming more exacerbated.
“So far the impacts are more economic than financial,” he explains. “The conflict between Russia and Ukraine is affecting growth and exports in Germany and throughout Europe. You don’t yet see the financial impact but you can see the real economic impact.”
Roubini believes that Putin’s popularity remains strong but that eventually the combination of sanctions inflicted on the country for its actions in Ukraine and abroad and lowering oil prices will pull Russia into a recession. This recession could lead the country to become more moderate and comply with the west and Saudi Arabia or it could drive them into an even more aggressive stance against the West. “It’s not clear what Putin’s reaction is going to be,” he says.
Beyond Russia and the Ukraine, Roubini is fearful of Ebola and cyber attacks leading to cyber wars.
China’s hard landing
“To one side there is an extreme hard landing where China’s growth slows to 3 or 4% and then there is the soft landing of the government consensus,” says Roubini. “Our view is more of a bumpy, rough landing where growth slows down to about 6% and below 6% by 2016.”
The landing Roubini predicts isn’t hard per say but it still has large implications for China, commodities, equities in Asia and for emerging markets. “When China sneezes the rest of the world catches a cold at this point,” he says.
Roubini predicts that global growth will increase slightly next year. He sees growth in developed economies mediocre but within emerging markets things will be very stratified—some will remain fragile (China and much of Asia), but others will do very well. “Those that are benefiting from being importers and those that aren’t linked to China and instead to the United States,” he says. He singles out India, Indonesia and Mexico as nations that will see vast growth.