Roubini’s 2009 U.S. forecast: Grim and grimmer

Nouriel Roubini
Nouriel Roubini

As promised last week, here’s a summary of the 2009 U.S. economic forecast (free registration required) from Nouriel Roubini, aka Dr. Doom, the man who back in 2006 predicted the mortgage morass and the credit crisis it engendered. These numbers reflect Roubini’s “benchmark” scenario, but bear in mind a couple of other factors: He told CNBC there was roughly a one in three chance that the United States will still wind up in a long-term deflationary stagnation akin to the Japanese meltdown of the ’90s or the U.S. experience in the 1930s; and he has followed this forecast with worrisome words about China, where a worse-than-expected downturn could increase the pain in America and in other developed countries.

Roubini believes that:

  • The recession, contrary to rosier forecasts from Wall Street, will continue throughout 2009 and result in a cumulative 5 percent contraction in the economy.
  • Housing prices, which have dropped about 20 percent so far, will continue to decline until mid-2010, with an eventual peak-to-trough loss of 30-40 percent.
  • The number of homeowners who are “under water” on their mortgages–they owe more than their house’s current market value–will increase from the current level of roughly 12 million to a range between 15 and 25 million, depending in part on the number of 2009 foreclosures.
  • The economy will continue to eliminate jobs throughout 2009, reaching 9 percent by the end of the year, and job cutting may persist even after the official end of the recession, edging up toward 10 percent in 2010. And the official unemployment numbers, he notes, will likely understate the extent of the pain because of the growing number of “discouraged” workers who stop looking for jobs.
  • Home mortgage-related credit defaults will continue to mount, and growing defaults in the commercial real estate and credit card markets will become bigger factors.
  • Stock prices could slide another 20 percent in 2009.

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Comments (3)

  1. Submitted by John Reinan on 01/26/2009 - 10:09 am.

    I’m glad you’re citing Roubini. He is Exhibit A that puts the lie to all the experts who say, “Nobody saw this coming.”

    Roubini, and others, saw it coming but were ignored. We’re not talking about cranks here. Roubini, Dean Baker, many credible economists and bloggers were writing about the housing bubble in 2006 and 2007.

    Any high-level economist or politician who says they didn’t see it coming should be branded as either incompetent or a liar.

  2. Submitted by Herbert Davis on 01/26/2009 - 01:19 pm.

    ..the same financial firms that are being bailed out are supporting the lobbyists that are lobbying for continuation of their favorable treatment and they also supported both parties national conventions and both candidates for president.

    The best politics money can buy….or has already bought and paid for?

  3. Submitted by dan buechler on 01/26/2009 - 08:33 pm.

    Just finished “work and faith in the kentucky coalfields subject to dust” Anyways this book deals with the transition from subsistence farming (which is considered private work) to coal mining (which is considered public work). The answer which we seem to be getting from our current leaders is partway getting us back to 2004. Inflated housing values, jobs in construction, hospitality and retail. There is a third kind of work (civic work) which can cut out the private middleman. I will be so pleased to see road repairs and other infrastructure improvements.
    If people think private companies always know best they shold see what freshman rep. grayson is saying in congress. Also the Civil Works Administration created far more jobs than the Public Works Administration in the 1930’s

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