Nouriel Roubini, the economist who predicted the global financial crisis, said stock markets are at the “tipping point” of a correction as economic growth may begin to slow.
Companies had ridden a worldwide recovery to boost sales and profits, supporting equity price increases, Roubini told a conference in Budapest today. Now, signs of a global economic slowdown may drag down stock prices, he said.
“Until two weeks ago I'd say markets were shrugging off all these concerns, saying they don't matter because they were believing the global economic recovery was on track,” Roubini said. “But I think right now we're on the tipping point of a market correction. Data from the U.S., from Europe, from Japan, from China are suggesting an economic slowdown.”
The world economy is losing strength halfway through the year as high oil prices and fallout from Japan's natural disaster and Europe's debt woes take their toll.
Goldman Sachs Group Inc. now forecasts global economic growth of 4.3 percent in 2011, down from its 4.8 percent estimate in mid-April.
UBS AG has trimmed its forecast to 3.6 percent from 3.9 percent. Downside risks also include a shift to tighter monetary policy in emerging markets.
Roubini, 53, a professor at New York University's Stern School of Business, predicted in July 2006 a “catastrophic” global financial meltdown that central bankers would be unable to prevent. In October 2008, Roubini said he still saw “significant downside risks to equity markets,” failing to predict the stock market rebound that sent shares soaring around the globe last year. The Standard & Poor's 500 Index has almost doubled from its low in March 2009.
Stocks rose today, preventing the fourth straight weekly loss for the MSCI All-Country World Index, and commodities gained after the Group of Eight leaders said the global economy is strengthening. The MSCI index added 0.8 percent at 10:32 a.m. in New York, putting the gauge 0.1 percent higher since May 20. The Standard & Poor's 500 Index climbed 0.4 percent.
Data this week showed Chinese manufacturing expanding at the slowest pace in 10 months, orders for U.S. durable goods dropping the most since October and confidence among European executive and consumers sliding for the third straight month. The MSCI World Index of stocks in advanced economies dropped 4.2 percent this month.
“Until now, equity prices were supported by better-than-expected earnings, sales and profit margins,” Roubini said. “But all three are under squeeze. With slow global economic growth, they're going to surprise on the downside. We're going to see the beginning of a correction that's going to increase volatility and that's going to increase risk aversion.”
--Bloomberg News--
