Pessimists regaining ground on Europe crisis

By Kang Seung-woo

Staff reporter

With the Euro-zone crisis renewing fears over another financial crisis, once-besieged economic pessimists have been regaining their footing.

Typical naysayers Nouriel Roubini, a New York University (NYU) professor, and Andy Xie, an independent economist in Shanghai, China have gushed doom and gloom on the creaky world economy.

Roubini, who forecast the U.S. recession more than a year before it began, told CNBC Thursday that the stock markets would suffer a sharp 20 percent decline over the coming months amid concerns that the world economy will continue to weaken.

The Dow Jones Industrial Average sank 376.36 points, or 3.6 percent, to close at 10,068.01 Thursday, its third straight day of losses and the biggest percentage fall since March 5 last year.

He said that Europe's crisis and the U.S. slowdown along with the uncertainty of other industrialized economies would weigh down on investors in the coming months.

In addition, Roubini, also known as "Dr. Doom" for his dire economic outlook, warned of a double-dip downturn, meaning the economy will experience another nosedive following a mild recovery.

"There are some parts of the global economy that are now at the risk of a double-dip recession," he said. "From here on, I see things getting worse."

The 51-year-old said that hammering out the debt trouble in Greece and other European countries was "Mission Impossible" and called for tougher decisions.

"What needs to be done is clear. We need to raise taxes and cut spending. Otherwise we're going to get a fiscal train wreck," he said. "It's going to take years of sacrifices."

Recently, major countries reported solid growth in the first quarter of this year.

The U.S. economy posted a 3.2 percent gross domestic product (GDP) growth in the first quarter and Asian economies enjoyed more robust growth than the United States during the same period ― Korea with 7.8 percent, Singapore with 7.2 percent and China with a double digit rate.

However, Xie pointed out that the current recovery is a temporary improvement supported by the government's preemptive stimulus measures. He is the former Morgan Stanley Asia chief economist, who was well known for predicting the 1997-1998 Asian financial crisis.

"I believe that the current recovery is due to stimuli and a low base effect. Compared to how much of a stimulus has been implemented, the recovery isn't so strong," he said in his contribution to New Century Weekly.

"More importantly, the structural problems that the financial crisis exposed have merely been covered up by stimulus, not solved. This is why the current recovery isn't sustainable. When the stimulus leads to inflation, interest rates have to be raised. It will lead to another dip in the global economy. I think that the timing for the second dip is 2012."