Roubini Sees ‘Significant’ 2012 Slowdown in Chinese

When Dante approaches the gates of hell in his Inferno, he sees a sign that reads “abandon all hope, ye who enter here.” The same sign should hang in places where economist Nouriel Roubini is scheduled to talk.


Living up to the reputation that won him the nickname Dr. Doom, Roubini described the somber state of affairs that will define 2012 in a Bloomberg Tradebook conference held in New York last Thursday. Roubini said current sources of uncertainty and volatility, including systemic risk in Europe, political gridlock in Washington, an unsustainable growth model in China, and the myth of decoupling will haunt the global economy in what he and his colleague Ian Bremmer of the Eurasia Group call a “G-Zero world.”


China’s gross domestic product increased 9.2 percent last year, matching the slowest pace since 2002, as the housing market cooled and the European debt crisis eroded export demand. The central bank cut the amount banks must keep in reserve last month for the first time in three years, and the government has allowed its five biggest banks to boost first-quarter lending and may relax capital requirements, people with knowledge of the matter said this week.


The world’s second-largest economy, China will further reduce the reserve-requirement ratio for banks in the first half of this year and reduce benchmark rates for the first time since 2008 to “jump start the economy,” Roubini said. Growth below 8 percent will create “political noise” as China undergoes a leadership transition, he said.


China is in the midst of a planned shift in its ruling elite that will culminate late this year at the 18th Communist Party Congress. The meeting, which occurs every five years, will probably see Vice President Xi Jinping tapped as China’s next president and Li Keqiang, currently vice premier, put forward as prime minister.


Roubini, a professor at New York University, predicted the U.S. housing bubble before the market peaked in 2006, while failing to foresee a rebound in global stocks in 2009.


Home prices fell last month in 52 of 70 Chinese cities from November, according to government data released on Jan. 18. Exports increased 13.4 percent in December from a year earlier, slowing from 24.5 percent in August, according to customs bureau data.