Nouriel Roubini, the economist who predicted the global financial crisis, said the earthquake in Japan comes at the “worst time” as the country struggles to lower its budget deficit.
“This is certainly the worst thing that can happen in Japan at the worst time,” Roubini told Maryam Nemazee on Bloomberg Television’s “Countdown” in London today. “There will be fiscal stimulus to reconstruct but Japan already has a budget deficit of close to 10 percent of” gross domestic product and an aging population.
The Bank of Japan pledged to ensure financial stability after the magnitude 8.9 earthquake struck off the coast of Sendai, sparking a tsunami. Japanese stocks declined in Tokyo today. The central bank, which keeps its benchmark rate at zero, had last month said the world’s third-largest economy is set to recover from a fourth-quarter contraction.
“In the short term, when you have a shock like this” it tends to produce “a weakening of economic activity,” Roubini said. “You have a slowdown in output in the same quarter but over time, if there is a massive amount of fiscal stimulus, there could be an economic recovery over the near term.”
Japan’s economy shrank more than the government initially estimated in the fourth quarter following a slump in consumer spending and capital investment, data showed yesterday. Moody’s Investors Service lowered its outlook on Japan’s Aa2 debt rating last month on concern about the government’s ability to tackle the world’s biggest public-debt burden.
Japan’s Ministry of Finance said it’s too soon to gauge the economic impact of the earthquake that caused damage across the country’s east coast. Roubini said that “it looks like a very serious earthquake.” The MSCI Asia Pacific Index dropped as much as 1.8 percent today.
“Certainly it is a negative for their stock market given that it is a destruction of wealth,” said Roubini, who is also co-founder of Roubini Global Economics LLC. “Also the effects on confidence are going to be significant.”