NYU's 'Dr. Doom' Roubini: Global stock markets to fall 20% more, due to China's recession

by Joseph Lazzaro

Filed under: International markets, Forecasts, Bad news, China, Indices, S and P 500, DJIA, Financial Crisis You thought New York University Professor Nouriel Roubini was simply another one of those 'liberal academics' who criticize only Republicans like former U.S. President George W. Bush, or was merely trying to attract media coverage?

Not quite. Roubini's forecast has not changed since President Obama's election and inauguration, and his once-extreme forecasts have proved to be more accurate than estimates by most economists.

China to weigh on stocks

Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis and recession, now believes stock markets around the world will fall 20% from current levels, due to China's recession, Bloomberg News reported Friday.

Further, Roubini believes China is already in a recession despite its most recent GDP report, which showed 6.8% growth in Q4 2008 and a 9% growth rate for 2008.

"Demand is falling in China, they're over-invested in capacity and there's a global supply glut," Roubini told Bloomberg News. "It has very, very important implications."

Economist David H. Wang, a China expert, told BloggingStocks Friday China's economy has already slowed so much -- it's slowed from double-digit to single-digit growth -- that it's already in "an equivalent recession." Moreover, Wang is also concerned that China may have massaged its recent GDP data somewhat, to the upside.

"It would not be beyond the realm of possibility for China to overstate GDP growth, then come back and revise the data lower at a later date," Wang said. "And if in fact China's economy continues to slow, that would significantly decrease demand for raw materials and commodities, which would weigh on both international economies and stock markets."

Roubini's forecast for U.S. and global stocks differs with Wall Street's consensus, which sees a 29% increase in the S&P 500 from Thursday's 827.50 close, Bloomberg News reported.

Market / Economic Analysis: Again, here's hoping Roubini is wrong, and the Wall Street consensus is correct. So far, Roubini has been on the mark, with the latest bulls-eye being his securities loss prediction for banks and brokers. Further, from a technical standpoint, a Dow decline through key support in the 7,300-7,600 range would put Roubini's forecast in view -- and there's not much technical support below it.