Famed economist Nouriel Roubini predicted that a recession from the worldwide coronavirus (COVID-19) outbreak will be “more severe” than the global financial crisis, but fiscal pump-priming is critical to mitigating the impact.
With governments around the world resorting to extreme measures to keep citizens indoors and away from large gatherings, many on Wall Street are now expecting a global recession. Known as “Dr. Doom” for his gloomy economic predictions, Roubini added to those voices by telling Yahoo Finance on Tuesday that markets have reasons to be downbeat.
“For now, there is not much to be optimistic [about], and what we can hope is if there’s going to be the right stimulus — and it has to be something of at least 3% of GDP — this is going to be a very severe, but short recession,” Roubini told “On The Move” in an interview.
In order to counteract the widening effects of social distancing, President Donald Trump and his top advisors are currently debating a massive stimulus — including cutting every American a check.
Roubini agreed, suggesting that Congress give $1,000 to “every single U.S. resident” before it’s too late.
“It doesn’t matter if you’re young, old, employed, unemployed, student, formerly employed, partially employed, hourly worker, contractor, gig, or small business,” the New York University economist said.
“Everybody needs at $1,000 or otherwise we’ll end up in the Great Depression at this point.”
Reality will bite soon
Retail and manufacturing data this week offered investors a small hint of the ugliness the pandemic has in store for the economy — and neither figure was pretty.
With that in mind, Roubini expects the recession will start during the current quarter, as the pandemic spurs mass closures of businesses and lost wages for many hourly and service sector workers. He forecasted a contraction in economic growth through the second quarter, and “most likely” in Q3.
“But if we have the monetary easing we have right now, if we control the pandemics by doing systematic quarantines, maybe by June-July the pandemic is stopped, and maybe by the fourth quarter of this year we are going to have an economic recovery,” he said.
The economist added that the U.S. needs “fiscal stimulus,” since the Federal Reserve has done “everything under the sun.” Within the space of a week, the Fed has cut rates to zero, and thrown trillions at the market in an effort to backstop financial institutions, non-bank corporations and lending markets overall.
Yet Roubini pointed out that what the economy actually needs is fiscal stimulus to backstop falling private demand — especially as exports, consumption, residential investment, and capital expenditures collapse.
Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.