Roubini: Ukraine Could Tip Europe Back to Recession

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April 28 (Bloomberg) -- Nouriel Roubini of Roubini Global Economics, discusses how Russia and Ukraine could affect the European recovery, market preparedness for a potential slowdown in the Chinese economy and why he sees a less dovish Federal Reserve in the near future from the 2014 Milken Global Conference on Bloomberg Television’s “Market Makers.”

People like this situation that is unfolding in ukraine as a concerns pressure presents the single biggest risk but maybe it isn't. share with us your view of what's happening there and how you think it will unfold and whether we are missing something bigger.

Among the local terrorists, the ones coming from ukraine are the most important.

There is the beginning of a new cold war between the west and russia.

This cold war could actually become as heated as possible if russia destabilize the eastern province of ukraine.

If this became a real war, it could be a situation where the supply of gas to europe may be cut off from russia.

The european economy is recovering from a recession and that could take the eurozone into recession.

On up 1-10 scale, how concerned are you that things could get catastrophic there?

Today i would say the risk is around 7 and rising.

The situation is one in which russia seems to be very aggressive in ukraine and they want to take over ukraine and therefore an escalation is likely to occur.

In what form?

You talked about the possibility that this could become a hot war.

I guess that means the use of force on both sides?


That assumes that nato will act.

Let's put it this way, suppose russia is going to decide to de-stabilize and invade eastern province of ukraine, two things will happen.

The west will have to become more severe.

Russia could limit the supply of gas to western europe but it secondly, if nato is not going to have a military information, they will have to provide military support to the government in kiev and that means the war could ask of a -- escalate for quite a while.

From a financial market point of view, it could affect the financial market in the eurozone.

Could escalate for quite a while?

If vladimir putin was to exercise force in a big way, he can and there's really nobody capable of responding to it other than the united states.

Even if he wanted to use force, he is not going to invade all of ukraine.

You don't know for how long a military conflict of this sort will continue especially if the u.s. and europe were supporting the government militarily inkiev.

This is not my baseline but there is a downside risk that this will happen.

This could remain lingering for a while and investors may become worry.

What about the impact on the european economy?

The eurozone is recovering and there is the beginning of an economic recovery but it is fragile.

The last thing the eurozone can afford and needs is another shock coming from an increase in gas prices or cut off of supply from russia.

That would tip the european economy back into recession.

Given the scenario just painted, does it make sense that spain is selling on that record low yields?

Given the additional of easing monetary policy, given the beginning of an economic recovery of a banking union, it's not surprising that the risk of the euro zone has receded.

Investors are coming back into the eurozone.

This could be a shock coming from the ukraine.

You recently came out with the six largest risks facing the global economy.

What are you most concerned about?

Leaving aside ukraine, the other big risk is the one coming from china.

I spent many days in beijing last week.

While the consensus believes china will have a soft landing, growth of about seven percent, my reading of the data is that because of the buildup of leverage and the need to rebalance the economy from fixed investment and consumption to slow down, the credit growth implies that may be .5% next year.

It's not a truly hard landing.

There is a much rougher landing than the 7.5 are sent than consensus expects.

Why aren't more people talking about the unexploded bombs in the chinese shadow banking system?

People have started to talk about it.

You have a huge amount of bad assets.

Now the chinese authorities are telling us they want to crack down on the moral hazard coming from the shadow banking system and they want to let some institutions fail but without insurance and no guarantees.

You could have a run against the banking system and that would be the beginning of the unraveling of the chinese financial system.

They underestimate the effect on the financial system if you are serious about cracking down on this rather than imposing market discipline.

What is most comparable to what china may face?

In the 1990's, there was 37% of gdp that was excessive in turkey.

Fixed investment was already something like 42% of gdp.

It went all the way to 50%. no country in the world can be so provocative that you can take half of your gdp.

Hard landing of that fixed investment in the financial investment and profit -- in private or public debt is what china is facing today.

You think the fed may raise rates too quickly.

Is janet yellen doing a good job?

She is but while she is on the dovish side, there are now the fmoc as a collegial democracy.

There are two new members that are confirmed and four of them are gone.

Tomorrow have to come in and likely the new members are not as dovish as janet yellen.

Of the new voting members, there are three new hawks.

The head of the cleveland fed used to be head of the philly fed so there is a shift toward less dovish composition.

The fed might hike sooner rather and faster.

What about the other challenge that confronts the fed, reversing unconventional monetary policy and tricking the balance sheet how do you expect the fed given the dynamics of the fmo city to handle that situation?

It's a bit of a delicate situation.

Either they exit sooner too fast and there is a hard landing on the economy or way too long an act to late because the economy is still weak and him unemployment is high.

It will take them 3-4 years to normalize from 0-4. a year or two from now, the risk is still just as bad and could form an asset bubble.

It could lead to a crash.

The risk is that the fed exits too little too late and we will re-create the same type of bubble we saw a few years ago followed by a bust and the crash.

I want to end on a high note.

You spent the last several months in asia, africa, south america and the u.s. where is there a bright spot?

Where have you been pleasantly surprised?

Overall, the global economy is recovering.

The average advanced economy will grow two percent this year.

It will be less than that in japan and the eurozone.

It has been good for many emerging markets but on average, five percent is good.

There are a whole bunch of risks like china and ukraine and russia and what the fed will do is another one.

There is a recovery which is the positive but there is a number of risks.

He just won't end on a high note.


doom comes back to us.

This text has been automatically generated. It may not be 100% accurate.


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