In an interview with the German news magazine Der Spiegel last week, Nouriel Roubini, who is famous for correctly predicting the 2008 financial crisis, said he believes the world markets will take a major hit from the ongoing coronavirus epidemic.
Coronavirus Impact Not Limited To China
“First, it is not an epidemic limited to China, but a global pandemic. Second, it is far from being over. This has massive consequences, but politicians don’t realize it.”
He says if the Chinese economy shrinks by 2% in the first quarter, the growth rate to recover in the remaining three quarters would have to be 8% to reach the 6% expected growth rate pre-coronavirus.
If China were to grow at 6% from Q2 2020, then the growth for the year would be between 2.5-4%. According to Roubini, “This rate would essentially mean a recession for China and a shock to the world.”
Political Response Is Inadequate
Roubini said in the interview that fiscal remedies to the epidemic are limited. He noted that countries like Italy do not have any “leeway.” German politicians were “not even thinking about stimulus, despite the country so exposed to China.” Central banks have limited options as in Europe, and Japan rates are already in negative territory. “This crisis is a supply shock that you can’t fight with monetary or fiscal policy.”
Chinese Need A Scapegoat
'Dr. Doom' shared his views on the possible political outcomes of the virus outbreak, “I don’t expect a revolution, but the government will need a scapegoat.” He expressed fears of looming military conflict over Taiwan, Hong Kong, or even Vietnam. “They’ll crack down on protesters in Hong Kong, or send fighters over Taiwanese air space to provoke the U.S. military. It would only take one accident in the Strait of Formosa and you would see military action.”
Trump Is Not Getting Re-Elected
Talking about the US election, Roubini predicted Trump “will lose the election, that’s for sure.” He based his opinion on chances of war between U.S. and Iran. He said that the U.S. government wants regime change in Iran and they “will bomb the hell out of Iranians.” War could lead to an oil price rise and Trump’s defeat in elections. Asked if a war against Iran is needed to defeat Trump, He replied, “Absolutely, and it’s worth it. Four more years of Trump means economic war!”
Global Equities Will Tank
“I expect global equities to tank by 30 to 40 percent this year.” prophesied Roubini. His advice to investors? “Put your money into cash and safe government bonds, like German bonds.”
And what if he was proven wrong? “If I am wrong and equities go up by 10 percent instead, that’s also OK.” He added that his motto is “Better safe than sorry!”
Photo Credit: World Economic Forum via Wikimedia.