Global recession may last until end 2010, says Roubini….
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics (RGE), predicted the current financial crisis two years ago, said the global recession will last all of this year and probably next.
He added the recession will continue through 2010 in advanced economies while job losses will persist for an additional year.
He said world governments are falling behind the curve in tackling the crisis with “policymakers moving in the right direction — but (doing) too little too late.”, Roubini warned that the United States, Europe and Japan must “get their act together” to avoid the global economy sinking further.
“People were hoping it would be a V-shaped recession — a sharp fall, followed by an equally quick recovery,” he said.
“But we are in the middle of an ugly U-shaped recession.”
Roubini said the bottom of the ‘U’ — the length of time the world economy will continue to contract — would last a minimum of three years starting from December 2007.
But he said there was a “one-in-three chance” that recession would turn into an ‘L’ — a prolonged period of stagnation or shrinking output, coupled with falling prices as demand dries up.
The situation can be improved by appropriate policies, including governments taking over insolvent banks, cleaning them up and re-selling them to private investors, he said. The Group of Seven and the Group of Twenty economies “must act together to get out of this mess,” Roubini said.
Roubini said the global economy may shrink 1% or grow 0.5% in 2009, before recovering to about a 1% growth in 2010, effectively extending the recession until the end of next year.
Emerging market economies, including China and India, will slow down sharply, he said, adding that “we are already seeing the beginnings of a hard landing.”
“People say when the US sneezes, the rest of the world catches cold. In this case, the US is just not sneezing, it has a severe case of chronic pneumonia.”
“We all sink or swim together,” he said, adding there is no way policy action in emerging economic giants India and China can pull the global economy out of the slump.
China’s economy may grow 5% “at best” in 2009 after expanding at an average 10% pace each year in the past decade, Roubini said, rejecting the theory that emerging markets are decoupled from the problems in industrialized countries.
Definition of V-Shaped Recession
What is the definition of a V-shaped recession?
When it comes to recessions/depressions, there are basically four different kinds of downturns. You have:
a) the V-shaped recession
b) the W-shaped recession
c) the U-shaped recession
d) the L-shaped depression
Of the four, the V-shaped recession is the one most preferred by economists and government officials.
In a V-shaped recession, you have a quick downturn in the economy (think of the first half of the letter V), which is followed by a quick recovery (think of the second half of the letter V).
When it comes to a V-shaped recession, think “short and shallow”.
Many policy makers in Washington had hoped that the “Great Recession” would be a V-shaped recession when the downturn started in late 2007.
However, things did not work out this way, as we are most likely working our way through a long U-shaped recession.
A good example of a V-shaped recession came in 2001-02.
In the aftermath of 9/11, the United States suffered through a recession.
The US economy quickly got back on the rails though, and the recession proved to be a short one.
What Are V-Shaped, U-Shaped and L-Shaped Recessions?
There are a number of different “types” of recessions.
You can have a V-shaped recession. You can have a U-shaped recession. You can have an L-shaped recession, and you can have a W-shaped recession.
In order to understand these different types of recessions, you need to imagine each letter on a graph. Each letter will represent economic growth (or lack of it) in the four different scenarios.
1. The V-Shaped Recession.
In this scenario, an economy falls into a sharp recession but quickly recovers.
Imagine the left side of the letter V representing an economy falling into recession, while the right side represents its quick recovery.
A V-shaped recession is “sharp and quick”. When the current recession started in the United States, many held out hope that it would be a “V-shaped” recession. Unfortunately, this wasn’t the case.
2. The W-Shaped Recession.
Also known as a “double-dipped” downturn.
In a W-shaped recession, you would have a sharp downturn which is followed by small, temporary recovery.
After the temporary “blip” in growth, the economy turns lower once again, before it eventually puts in a full recovery.
3. The U-Shaped Recession.
In a V-shaped recession, the economy suffers through a sharp recession but quickly recovers.
In a U-shaped recession, the economy takes a much longer period of time to recover (usually in the neighborhood of 12-24 months) from a sharp recession.
Many believe that the United States is currently experiencing a U-shaped recession right now.
If a V-shaped recession is “sharp and quick”, then a U-shaped recession is “long and protracted”. Just imagine the letter V and the letter U on a graph and you will start to get the picture.
4. The L-Shaped Recession.
This is the doomsday scenario for the US economy.
Imagine a sharp recession, followed by years of stagnant growth. This is the L-shaped recession, and this is the scenario that the people running the United States desperately want to avoid.
In the L-shaped recession, the economy doesn’t begin to recover for an extremely long period of time (think 7-10 years).
The best example of an L-shaped recession is Japan in the 1990s. Their housing and equity markets plummeted, and the country was thrown into a multi-year depression. They experienced the L-shaped recession.
Given how aggressive the US government has been in combating this current economic downturn, the possibility of an L-shaped recession is fairly unlikely.
We are almost certainly work out way through a U-shaped recession, and are likely 8-12 months away from seeing a recovery.