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Friday 16th of October 2009
October 9, 2009    

Leading economist warns ‘crisis is not yet over’

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by Kay Murchie

Nouriel Roubini, a leading US economist who was accurate in predicting the severity of the financial crisis, has warned “the crisis is not yet over.”

Mr Roubini, a New York University professor, told the BBC yesterday of his concern that we are already “planting the seeds of the next crisis”.

He comments: “I see an economy where the consumers are shopped out, debt burdened, they have to cut back consumption and save more.

“The financial system is damaged… and for the corporate sector I don’t see a lot of capital spending because there is a glut of capacity,” he added.

Furthermore, Mr Roubini is predicting a further 10% fall in US house prices as demand from first-time home buyers wanes - which will heighten pressure on the economy again.

As well as the banking system, many experts believe that the housing market is key to US recovery.

Mr Roubini goes on to say that there is some $2 trillion in outstanding commercial real estate loans, which could pose a risk next year.

“Half of this is in medium-sized and smaller banks, and even in the larger ones. Most of these losses are not recognised because they’re keeping the loans at face value on their books.”

He is predicting that banks in the US and the UK will need to raise more capital when those write-downs are made.

Finally, the economist warns there is a 20-25% chance of a double-dip in developed economies. But worryingly “if there is a double dip, the consequences will be severe for everybody.”

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