Friday, January 15, 2016

Roubini: The New Abnormal for a Troubled Global Economy

The world economy has had a rough start in 2016, and it will continue to be characterized by a new abnormal: in the behavior of growth, of economic policies, of inflation and of key asset prices and financial markets.
First, potential growth in developed markets and emerging markets has fallen, and actual growth will remain below this weak potential. That potential has fallen because of the burden of high private and public debt, population aging—older people tend to save more and invest less—and a variety of uncertainties that keep capital spending low. Meanwhile, technological innovations haven’t translated yet into higher productivity growth at the aggregate level, while structural reforms aren’t moving fast enough to increase potential growth. There’s also “hysteresis”—the way that protracted cyclical stagnation can weigh down potential growth, since human and physical capital become more obsolete if they aren’t used at full capacity.

 Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics

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