Saturday, September 4, 2010

Economic forum offers sobering forecast for U.S.

CERNOBBIO, Italy — Is the global economy out of the woods? Two years after a near-meltdown, with the U.S. looking sluggish, equity markets groggy and Europeans fighting a debt crisis, experts gathered in Italy offered a generally gloomy outlook, especially for the United States and much of the industrialized world.
The doomsayers were led by New York University economist Nouriel Roubini, who warned in booming tones that "there is a significant risk of a double-dip recession in the United States," as well as in Japan and many European countries.

Some of the assembled experts and leaders at the annual Ambrosetti Forum on the shores of Lake Como were somewhat more upbeat. Economist Edwin Truman, a senior fellow of the Peterson Institute for International Economics, predicted "the most likely global outlook is subpar growth."

But most appeared to agree on a sobering array of basic problems standing in the way of recovery:

• Many of the growth drivers in place since the collapse of Lehman Brothers are winding up or have ended, including not only the massive stimulus spending but tax breaks, the Cash for Clunkers program and, for some countries such as Russia, high commodity prices.

• The stimulus deemed necessary to jump-start moribund economies soon causes deficits and debt, upsetting the markets enough to spur austerity, which undermines growth.

• Most of the world's growth stems from a developing world led by China, which is so dependent on exports that it needs the West to continue to buy, and so will suffer if recovery in the rich world proves short-lived.

• Europe continues to lose competitiveness partly because of the euro, which, for all the fretting over its dip earlier this year at the height of the Greek debt crisis, remains high in purchasing price parity terms versus the U.S. dollar.

• The sector that is widely seen as the spark of the global recession, U.S. real estate, has not recovered, with house-buying flat and the mortgage market, with its related financial instruments, essentially still in ruins.

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