Recession Will Last At Least 24 Months, Says Economist

Source : The Business Times, April 21, 2009

(HONG KONG) Nouriel Roubini, the New York University professor who predicted the financial crisis, said that he was 'still bearish' and that an economic recovery is going to take 'longer than expected.'

Prof Roubini: 'The current rally is a bear-market rally... This is a dead-cat bounce, sucker's rally, whatever you want to call it.'

Corporate earnings will 'surprise on the downside,' Prof Roubini said in a speech in Hong Kong yesterday. 'Lots of banks, even the better ones, are going to be in trouble.'

Banks around the world have reported US$1.3 trillion in credit losses tied to the housing market collapse since 2007. The deficits, which spurred the first simultaneous recessions in the US, Europe and Japan since World War II, pushed the American government to pledge US$12.8 trillion to stabilise the banking system and revive economic growth.

The Standard & Poor's 500 Index, which tumbled 38 per cent in 2008, has rallied 29 per cent after sinking to a 12-year low on March 9. Prof Roubini said that day that the S&P 500 is likely to drop to 600 or lower this year as the global recession deepens.

George Soros, the billionaire hedge-fund manager who made money last year while most peers suffered losses, said on April 6 that US stocks weren't at the start of a bull market yet because the economy is still shrinking.

'The current rally is a bear-market rally,' Prof Roubini told reporters after his speech. 'I don't expect a 50 per cent adjustment that I expected two years ago, but this is a dead-cat bounce, sucker's rally, whatever you want to call it.'

Prof Roubini's view contradicts that of investor Marc Faber, who said on April 13 that the S&P 500 may rise to 1,000 in the next three months as government spending boosts bank profits.

Markets are 'way ahead' of real economic data and this recession will last at least 24 months, Prof Roubini said. He predicted China's economy will grow 5.5 per cent in 2009, which is slower than the 8 per cent expansion the Chinese government is targeting.

Prof Roubini has stayed away from 'risky assets' including equities, and 95 per cent of his savings have gone into cash.

'Reserving capital, compared with losing 50 per cent of it, is good,' he said. -- Bloomberg