Excess capacity in the world economy could lead to deflation in the next three years, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis.
“There is already excess capacity in the global economy because of the overinvestment in capacity by China, Asia and other emerging markets,” Roubini said in Singapore today. “Without an increase in global demand, we will have even more excess capacity,” and China “is not building domestic demand,” he said.
Global trade will plunge 9 percent this year, the most since World War II, as the recession deepens, the World Trade Organization forecast in March. The U.S., Japanese and European economies will remain weak next year, hurting prospects for a recovery in stocks and company earnings, Roubini said.
The recent rebound in global stocks is still a “bear- market rally,” he said, predicting economic data and corporate profits will disappoint. “I will be cautious on equities.”
“Growth in the U.S. next year is going to be so low at 0.5 percent and the employment rate will be at 11 percent from 10 percent this year,” he said. “Prospects of recovery in Europe and Japan of are even worse than in the U.S.”