'Hard landing' coming in China, warns Nouriel Roubini

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'Hard landing' coming in China, warns Nouriel Roubini

Postby Spearhead Research » Wed Oct 26, 2011 11:01 am

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'Hard landing' coming in China, warns Nouriel Roubini

BY: ANDREW BURRELL AND DAVID UREN

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Nouriel Roubini from New York University is warning of a hard landing for the Chinese economy. Picture: Colin Murty Source: The Australian

AUSTRALIA faces the threat of a "hard landing" in China within two years and the growing risk of being hit by a double-dip global recession sparked by the European debt crisis, one of the world's leading economists said yesterday.

Nouriel Roubini, from New York University and widely known as "Dr Doom" for predicting the global financial crisis of 2008, told the opening day of the Commonwealth Heads of Government Meeting business forum in Perth that China's economic growth model was unsustainable, and he predicted a sharp slowdown in 2013.

The downturn would have a "major effect" on Australia by driving down commodity prices and denting economic growth.

"If China has a hard landing, for a period of time that's going to hurt growth and reduce commodity prices until China recovers and until the rest of the world recovers," he said.

Mining giant BHP Billiton last night rejected Professor Roubini's bearish forecast, saying it believed China would continue to grow strongly at between 7 and 8 per cent a year.

Reserve Bank deputy governor Ric Battellino said yesterday he remained confident in China's economy, saying its authorities had lots of scope to support growth with stimulus measures if they needed to.

In a speech to a business conference in Sydney yesterday, Mr Battellino said the Reserve Bank's central scenario was that the world economy would continue to record average levels of growth over the year ahead, with no sign yet that the volatility in Europe was affecting economic activity anywhere else.

"That would create a reasonably benign environment for the Australian economy," he said, while admitting the global outlook remained fragile.

The China debate came as Julia Gillard and Kevin Rudd told 1200 business leaders at the CHOGM forum that Europe's leaders must act urgently to solve the continent's sovereign debt crisis.

The Prime Minister warned European leaders against continuing to "muddle through".

Ms Gillard later played down consideration of IMF contributions to help Europe, saying they could not be looked at until European nations came up with credible plans to deal with their own problems.

"It first requires a credible position out of European leaders," Ms Gillard said.

"We do need European leaders to emerge from those discussions with a credible plan to deal with sovereign debt issues, with a credible plan to deal with fiscal consolidation and the future of economic growth and the recapitalisation of European banks.

"The focus needs to be on European leaders coming together, ending the days of muddling through and coming up with a credible plan of action."

Asked if there were any circumstances under which Australia could contribute to Europe through the IMF, she said some IMF commitments had already been made. But Europe had no alternative but to act for itself, she added. "You only get the IMF after discussion if we have a credible plan from Europe," the Prime Minister said. "Talking about IMF is not a substitute for European leaders emerging from these talks with a credible plan for action.

"If there is a credible plan for action, we have been participants in the discussion about IMF reform and we will continue to be so."

Foreign Minister Kevin Rudd presented a subtly different analysis of Europe, saying that if leaders failed in tomorrow's summit to achieve a deal, the responsibility would then pass to the G20 leaders' summit in Cannes in two weeks to "embrace a credible plan for resolving the euro area crisis and so restore confidence to global financial markets and restart global growth".

British Trade Minister Stephen Green last night told The Australian he believed the eurozone would be able to hang together but he expressed relief that Britain had decided against adopting the European currency.

"I don't think you'd find a single vote in Britain for joining the euro at the moment," Lord Green said.

Professor Roubini told the conference he believed there was a high chance of a looming recession in most advanced economies, but not in Australia.

"If we look at the situation in the United States, in the eurozone and in the United Kingdom, the chances of another recession are significant," he said.

"In a situation where (the European debt crisis) becomes disorderly with defaults by a number of countries and a resulting exit of a number of states from the eurozone and its eventual break-up, the shock that could occur . . . could be as large, if not larger than the fall of Lehman (Brothers) in 2008."

He said China's strong reliance on exports, rather than domestic consumption, as a key driver of growth was unsustainable. He predicted a possible "hard landing" in 2013. He said while Australia would be hit by a downturn in China, it might only be a temporary shock and the longer-term outlook for commodity prices was strong.

Mr Battellino said China's authorities had been deliberately slowing growth to get control of inflation. "I think it's in everybody's interest, including for Australia, for growth in China to slow to a more sustainable rate," he said, nominating a range of 8 to 10 per cent.

Mr Battellino said the effect of a recession in Europe on Australia would depend on how it affected our major customers in Asia.

"My sense is people underestimate the extent to which Asian growth is being driven by Asian demand," he said.

Standard Chartered Bank revised down its economic growth forecast for China next year from 10 to 8.5 per cent. It said Chinese domestic growth had slowed more gradually this year than forecast and it was concerned about the global outlook arising from the European sovereign debt crisis.

BHP Billiton chief commercial officer Alberto Calderon told CHOGM the miner believed China would continue to grow between 7 and 8 per cent. "Everything we see from our offices in China points to the fact that China can continue to grow at around 7 to 8 per cent," he said.

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Re: 'Hard landing' coming in China, warns Nouriel Roubini

Postby Spearhead Research » Fri Oct 28, 2011 11:40 am

Actually, Nouriel Roubini has been talking about China's demise right from the time he was predicting the 2008 financial crisis. One happened the other didn't and personally he only qualifies in the 50% probability bracket: You need to be truly pathetic to miss two out of two!

No rocket science that China's growth rate will slow in the coming years, because the Chinese government is also wanting to ease their foot on the paddle. Up to the third quarter 2011, results show 9.10% growth rate in China, which is still beyond expectations. Further, from the Chinese government's point of view they rather see an eased growth, because it will not only bring down inflation (high on their priority list) but also facilitate a softer landing, i.e. if indeed you can call it a landing!

Last but not least, China's debt is still as low as 20% of GDP and with their banking still pretty much driven by the government, they have the leverage to absorb real estate related bad debts while continuing to provide the necessary level of stimulus to shore up domestic demand/consumption.

Conclusion: Dr. Doom should stop worrying about China and for the time being just be concerned about his own backyard!

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