NEW DELHI: Economist Nouriel Roubini, known for his correct prediction of the financial crisis the world faced in 2008, has now warned about a “long and ugly" recession across the world that can start at the end of this year and continue well into 2023. He also predicted a sharp correction in the S&P 500. His warning comes after the US along with all major economies is seeing high rates of inflation amidst back-to-back blows including the Covid-19 pandemic and Russia’s invasion of Ukraine.

“Even in a plain vanilla recession, the S&P 500 can fall by 30 per cent," said Roubini, chairman and chief executive officer of Roubini Macro Associates, told Bloomberg in a recent interview. In “a real hard landing," the US stock market index could fall by as much as 40 per cent, Roubini expected.
Roubini, also known as Dr Doom for his correct prediction of the economic crisis between 2007 and 2008, said “those expecting a shallow US recession should be looking at the large debt ratios of corporations and governments". 
He said many zombie countries, shadow banks, banks, corporates, zombie households, and zombie institutions would die. Roubini warns that recession will drag the global markets down because of debt levels worldwide, and it will be impossible for the Federal Reserve to keep inflation down to 2 per cent.

Roubini predicts a 50 basis point increase in November and December and a 75 basis point increase in the current meeting. He believes there will be more hikes because of inflation in the service sector and wages. He believes China's zero COVID tolerance, the Russia-Ukraine conflict, and pandemic supply shocks will result in lower growth of the economy and higher costs. Roubini expects private equity and credit funds, hedge funds, shadow banks, and shadow corporations to implode. Banks and households took the hardest hit in the 2007-2008 crisis. He expects the recession to last for the whole of 2023 and predicts it to be long and ugly.

However, continued inflation could mean that the Fed would have “probably have no choice" but to hike more, he said. He did not expect any fiscal remedies when the world falls into recession as governments with too much debt are “running out of fiscal bullets." He said that high inflation would also mean that “if you do fiscal stimulus, you’re overheating the aggregate demand."

Due to this, Roubini sees a stagflation similar to that in the 1970s and a massive financial debt. “It’s not going to be a short and shallow recession, it’s going to be severe, long and ugly," he said.

He did give an advice to investors. “You have to be light on equities and have more cash." Though cash is eroded by inflation, its nominal value stays at zero, “while equities and other assets can fall by 10 per cent, 20 per cent, 30 per cent."