There is a 50 percent chance of a recession in the U.S., the U.K. and eurozone economies in the next 12 months, said Nouriel Roubini, co-founder and chairman of Roubini Global Economics LLC.
Europe’s “financial engineering” is insufficient to end its sovereign-debt crisis, Roubini said in a speech in Jakarta today. Contagion from the debt crisis has spread to some French and Belgian banks, he said.
“Unfortunately, in my view there is a risk, at least a 50 percent probability, that in the U.S., in the eurozone, in the United Kingdom, and in most advanced economies, the future in the next 12 months might suggest a recession, a downturn, rather than reacceleration of growth,” Roubini said.
European leaders ruled out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund and outlined plans to aid banks in their latest meetings to seek a strategy to contain the Greece-fueled debt crisis. Greece’s deteriorating finances have narrowed Europe’s room for maneuver in battling the contagion, which threatens to pitch the country into default, rattle the banking system, infect Spain and Italy and tip the world economy into recession.
The 13th crisis-management summit in 21 months excluded a forced restructuring of Greece’s debt, sticking with the policy of enticing bondholders to accept “voluntary” losses. The complete blueprint will be formed Oct. 26.
The slowdown in emerging markets has been moderate so far, Roubini said today, adding that such economies are strong and resilient.
Emerging-market nations are boosting measures to drive growth and insulate themselves from the struggling U.S. recovery and deepening European crisis. The Philippines unveiled a 72 billion-peso ($1.7 billion) stimulus package this month as officials cut growth forecasts for 2011.
Indonesia unexpectedly cut its benchmark interest rate on Oct. 11 for the first time in more than two years. Brazil’s central bank cut borrowing costs by half a point last week for a second straight meeting as growth in Latin America’s biggest economy slows.
China’s manufacturing may expand in October for the first time in four months, snapping the longest contraction since 2009, after a preliminary index of purchasing managers showed a rebound in new orders and output. The reading of 51.1 for the index released by HSBC Holdings Plc and Markit Economics today was the highest in five months and compares with the final reading of 49.9 for September and August. A reading above 50 indicates expansion.