Opinion

The New Abnormal for a Troubled Global Economy

Nouriel Roubini
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It is indeed a new abnormal for growth, inflation, monetary policies and asset prices—and it is likely to stay with us in 2016 and well beyond.
By Nouriel Roubini
It is likely to stay with us in 2016 and well beyond

The world economy has had a rough start in 2016, and it will continue to be characterized by a new abnormal: in the behavior of growth, of economic policies, of inflation and of key asset prices and financial markets.

First, potential growth in developed markets and emerging markets has fallen, and actual growth will remain below this weak potential. That potential has fallen because of the burden of high private and public debt, population aging—older people tend to save more and invest less—and a variety of uncertainties that keep capital spending low. Meanwhile, technological innovations haven’t translated yet into higher productivity growth at the aggregate level, while structural reforms aren’t moving fast enough to increase potential growth. There’s also “hysteresis”—the way that protracted cyclical stagnation can weigh down potential growth, since human and physical capital become more obsolete if they aren’t used at full capacity.

What actual growth we’ve seen has been anemic, below its potential as a painful process of deleveraging has been under way, first in the U.S., then in Europe and now in emerging markets, to stabilize and reduce high levels of private and public debts and deficits.


Read full article as published in TIME.

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Nouriel Roubini is a Professor of Economics and International Business and the Robert Stansky Research Faculty Fellow.