ROUBINI SEES RISING RISK OF DOUBLE-DIP RECESSION

       Nouriel Roubini, the New York University professor who predicted the financial crisis, said the chance of a double-dip recession was increasing, due to risks related to ending global monetary and fiscal stimulus.
       The global economy will bottom out in the second half of the year, Roubini wrote yesterday in a Financial Times commentary. The recession in the US, the UK and some European countries will not be "formally over" this year, while the recovery has started in some nations, including China, France, Germany, Australia and Japan, he said.
       Governments around the world have pledged US$2 trillion (Bt68.26 trillion) in stimulus measures amid the worst worldwide recession since the Great Depression. Federal Reserve Chairman Ben Bernanke and other global policy-makers have cautioned the recovery will likely be muted, indicating they will not soon remove all of the stimulus injected into the financial system.
       "There are risks associated with exit strategies from the massive monetary and fiscal easing," Roubini wrote. "Policy-makers are damned if they do and damned if they don't."
       Government and central-bank officials may undermine the recovery and tip their economies back into "stagdeflation" if they raise taxes, cut spending and mop up excess liquidity in their systems to reduce fiscal deficits, Roubini said. He defines "stagdeflation" as recession and deflation.
       Those maintaining large budget deficits will be punished by bond-market vigilantes as inflationary expectations and yields on long-term government bonds rise and borrowing costs climb sharply, he wrote. That will in turn lead to stagflation, Roubini said.
       European Central Bank (ECB) officialsled by President Jean-Claude Trichet are suggesting they will not rush to reverse their emergency stimulus amid mounting evidence of an economic recovery.
       The ECB has cut its benchmark interest rate to a record 1 per cent and is buying covered bonds and flooding banks with money.
       "We see some signs confirming the real economy is starting to get out of the period of free fall," Trichet told the Fed's annual symposium in Jackson Hole, Wyoming last Saturday.
       This "does not mean at all that we do not have a very bumpy road ahead of us".
       When needed, the ECB will implement a "credible exit strategy" from its crisis policies, Trichet said.
       The US must address the massive amounts of "monetary medicine" that have been pumped into the financial system and now pose threats to the economy and the US dollar, billionaire Warren Buffett said last week.
       Roubini now expects a U-shaped recovery, where growth will be "anaemic and below trend for at least a couple of years", he said.
       A full global recovery from the present recession may take two years or more, Nobel laureate Paul Krungman said earlier this month.
       Rising unemployment, a global financial system that is still "severely damaged" and weak corporate profitability are among reasons why any recovery will not be V-shaped, Roubini said.
       "Strains persist in many financial markets across the globe," Bernanke said in a speech in Jackson Hole last Friday.
       "The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels."
       Energy and food prices are also rising faster than warranted by economic fundamentals, which may also increase the risk of a double-dip recession, Roubini wrote, adding that they could be driven by speculative trades.
       "Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil-importing economies," he said. "The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly toward $100 a barrel."