Nouriel Roubini, the New York University professor who anticipated the financial crisis, says the outlook for growth remains “very dismal”. The White House economic adviser, Lawrence Summers, says the economy is still mired in a “human recession”.
Speaking at the World Economic Forum in Davos after the US reported the fastest growth in six years, the comments underscored concern that emergency measures to rescue banks and fight the recession may be soon withdrawn.
“The headline number will look large and big, but actually, when you dissect it, it’s very dismal and poor,” Professor Roubini said after a Commerce Department report showed expansion of 5.7 per cent in the fourth quarter. “I think we are in trouble.”
More than half that growth owed to replenishing depleted inventories and relied on monetary and fiscal stimulus, he said. As these forces ebb, the rate will slow to 1.5 per cent in the second half of this year.
Professor Roubini, the chairman of Roubini Global Economics in New York, has become famous for his pessimistic projections. In 2007 he correctly predicted a “hard landing” for the world economy. Last year he said the global recession would shrink, only for growth to resume in the middle of the year.
Now he says that while the world’s largest economy won’t relapse into recession, unemployment will rise from 10 per cent at present amid “mediocre” growth.
“It’s going to feel like a recession, even if technically we’re not going to be in a recession,” he said.
Also speaking in Davos, Mr Summers, director of the White House National Economic Council, said the statistical recovery would not mask a “human recession”.
US expansion in the October-December period came from manufacturers cranking up assembly lines and companies investing in equipment and software. The rebuilding of stocks contributed 3.4 percentage points to gross domestic product, the most in two decades.
The rebound followed the Federal Reserve’s decision to cut the benchmark interest rate to near zero in December 2008 and President Barack Obama’s $US787 billion ($900 billion) stimulus. The jobless rate has the central bank promising to keep borrowing costs low and Mr Obama making new proposals to create jobs.
This week the administration presented a $US3.8 trillion fiscal 2011 budget that calls for an extra $US100 billion in stimulus spending and projects this year’s deficit will hit a record $US1.6 trillion.
Mr Summers, a former Treasury secretary, predicted growth would continue “at least at a moderate rate”.
“What is disturbing is the level of unemployment. One in five men in the US between the ages of 25 and 54 is not working right now.”
Even after a “reasonable” recovery, it will be “one in seven or one in eight”. That compares to the mid-1960s, when 95 per cent of men in that age range worked and “suggests quite profound issues that will ultimately impact on politics and decisions that businesses make”, he said.
A report scheduled to be published by the Labour Department on Friday may show the US gained jobs in January for the second time in three months. And the unemployment rate may have held at 10 per cent for the third month.
The Nobel Prize-winning economist Joseph Stiglitz said Mr Obama’s efforts to bolster the economy were only “a step in the right direction”.
“I’m a bit worried that again it’s not enough. He has to take a much more active [approach]. It has to be a second round in stimulus, focusing in particular on investment.”
smh.com.au
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