Friday, October 24, 2008

Roubini predicts 2-year recession

The US economy is entering a two-year recession that will be longer and deeper than previously feared, said Nouriel Roubini, a well-known economist and professor at New York University.

"I believe we're going to have two years of negative economic growth," Roubini said on CNBC. "The last two recessions lasted only eight months each ... This time around this is going to be three times as long, three times as deep. This is going to be the worst recession the US has experienced since the 1980s."

A slowdown in global economic growth combined with continued problems in credit markets and housing will haunt the economy, Roubini said. ...

"I believe that the worst is still ahead of us. I think that the next few weeks and months are going to be negative surprises on the economy," he said. ...

"But we're going to have a severe recession. If this is going to be a two-year recession, that's not priced by the market. And there are significant downside risks for the stock market and credit markets in my view," he said. "Yes, we're going to avoid the Great Depression, we're going to avoid a 10-year stagnation. That's not going to be the case."
Notice that he predicts the worst recession since the 1980s, not the worst since the Great Depression. When economists say that this is the worst financial crisis since the Great Depression, many economically-challenged journalists incorrectly report that this is the worst economic crisis since the Great Depression. A financial crisis (affecting the financial system) and an economic crisis (affecting the broader economy) are not the same.


  1. 2 years? We should be so lucky.

  2. Good thing I didn't buy a house and put all my money into CDs and the stock market instead.

    By the time the economy turns around, (2 years?) the price of oil will again be high.

    At that point, I'll swoop in and buy my dream house in Stafford for pennies on the dollar!

  3. Nice catch James - I almost glossed over the distinction.

  4. Okay, so he is saying the the price to earnings ratio for the S&P 500 of 11 doesn't take into account the upcoming two year recession? The market started to slide back in October 2007. So if the market is priced 6 months ahead of the economy then we have another year of the stock market sliding? Also, it slid about 48% from its intraday high in October 2007 to its intraday low in this month. Are we going to see a drop of the market by more than 50%?

    I keep hearing that the recession is going to start and then I look around and see many indicators (like unemployment) say otherwise.