ECONOMIST Nouriel Roubini, who famously identified the causes of the global financial crisis, says Australia will ride out the storm better than most, but predicts a global recovery will not start until next year and even after it does, there is a high chance it will be shortlived.
The closely followed New York University economics professor also said the Reserve Bank was unlikely to start hiking interest rates this year.
Professor Roubini, labelled Dr Doom when in 2005 and 2006 he predicted that mortgage defaults would trigger a massive US housing bust and deep recession, said while there was light at the end of the tunnel, the global recession would not run its course until the year was over.
He said consensus was too bullish and a market correction was likely, and added there was the prospect of a double-dip global recession.
Delivering the opening speech to the annual Diggers and Dealers mining conference in Kalgoorlie yesterday, Professor Roubini also doused some of the recent optimism that has been returning to the mining sector.
He said there was little scope for further gains in gold prices and that China had overstocked on commodities during the boom, which could weigh on prices in the second half.
"My reading of the data is that the accumulation of inventory of commodities by China has probably run at a rate that is larger than the underlying demand for these commodities is going to be, even in the scenario where there's a meaningful return of growth in China," he told The Australian.
"There may be greater softness in demand in the second half of this year and into some time in 2010 ... it's a meaningful risk."
Still, he said demand from China and India was real and he saw both "green shoots" and "yellow weeds" in recent global data. Australia is in recession, but lower levels of public debt, resilient housing markets and strong exports mean it is in better shape than the US, Europe and Japan.
"The recovery in Australia is going to be gradual, so maintaining and monitoring the fiscal stimulus for a bit longer is going to be desirable," he said.
"Australia could be one of first countries to increase policy rates after a phase of cutting. In my view it's more likely than not that tightening will start to occur next year rather than this year. The recovery is barely starting, inflationary pressures are still very contained because of rising unemployment and slackness of demand (so) a cautious approach is more likely to be taken."
Globally, policymakers will have to tread lightly to avoid a double-dip recession, he said.
If they tried to address high deficits too early, economies could be plunged back into recession, he said.
On the other hand, increases in deficits for further stimulus packages could be too much for economies to bear.
Professor Roubini said that if the global economy grew next year, further gains in commodities prices were expected.
However, at a conference in the nation's goldmining capital, used to having gold bulls paraded before it, the yellow metal was singled out as one commodity not likely to go up until at least the end of next year.
The Turkish-born academic said the two catalysts for recent gold price gains that had sent prices near $US1000 an ounce -- first inflation during the boom and then fears cash was not safe and the world was heading into a depression -- were not likely to be repeated.
"This year and next, the big story will be deflation," he said.
The good news for goldminers was that he did not see prices falling too much from their historically high prices of about $US950 an ounce.
Another highly anticipated speaker at the mining conference yesterday, Ivanhoe Mines' billionaire boss Robert Friedland, did not show up due to an important meeting elsewhere.
Speculation immediately turned to Ivanhoe and Rio Tinto's Oyu Tolgoi deposit in Mongolia, where the pair are trying to strike a deal with the government that will enable the mine to start.
Source:
The Australian