For two decades, he’s been the Nosferatu of economic forecasting, torpedoing optimism with his ice-cold predictions.
US economist Nouriel Roubini – aka Dr Gloom – won his reputation back in the mid-2000s for correctly predicting that a giant housing bubble would soon engulf the global financial system, a notion that Wall Streeters dismissed as alarmist.
Since then, the professor emeritus of economics at New York University’s Stern School of Business has doubled down on his naysaying, sounding the alarm about AI-related job losses; the incoming climate disaster; and a seemingly inevitable bust-up between China and the US over Taiwan that could pitch us into a new cold war.
In his 2022 book Megathreats, he claimed the global economy had become so saturated with debt that it now resembled Argentina, a country that has defaulted four times since the 1980s.
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That’s what makes his latest thesis and his decidedly positive take on the US economy surprising.
You might have expected Roubini to row in behind the part-dominant thesis on Donald Trump’s Liberation Day tariff agenda, namely that it will slow US growth, tank the stock market and destroy the dollar’s reserve currency status.
Instead Roubini believes US exceptionalism (the thesis that the US economy is more structurally sound and sustainable than its developed peers) will persist because the US (along with China) remains a jump ahead in the most important innovations of the future, including AI and machine learning, robotics, quantum computing, space commercialisation and defence technology.
The productivity gains from these technical advances will see US growth rise from an average of 2 per cent to 4 per cent by the end of this decade, he predicts.
It’s not that he sees a positive in Trump’s protectionist policies, quite the opposite, just that they will be trumped (excuse the pun) by a host of other factors, not least the US’s technological supremacy.
[ Are we overegging the threat from US tariffs?Opens in new window ]
Technology is the reason why there is a yawning GDP (gross domestic product) gap between the US and Europe, one that is widening rather than contracting. The gap (it has grown from 17 per cent in 2002 to 30 per cent in 2023) equates to $8,500 (€7,370) on a per capita basis.
In Roubini’s eyes, Trump’s tariffs are temporary, but the US’s tech advantage is not and will play out for decades to come.
“While the consensus market outlook since the April 2nd Liberation Day tariff shock has been pessimistic about the US economic outlook, this pessimism ignores how market discipline, institutional guardrails, and the scale of AI-led investment – spanning advanced semiconductors, automation, and the data-centre buildout – are likely to outweigh any stagflationary drag,” Roubini writes in a recent paper.
His new catchphrase is “tech trumps tariffs”.
“On this trajectory of higher potential growth, US exceptionalism strengthens rather than fades; equity valuations need not rest on bubble dynamics and should deliver solid returns despite episodic volatility, while some credit events are idiosyncratic rather than systemic; higher trend growth improves public- and external-debt sustainability even as a Capex boom widens the current-account deficit; and the dollar’s reserve-currency role endures, with near-term weakness likely to give way to medium-term support as productivity and potential growth accelerate,” he says.
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Thus, what we’re seeing in the US right now in terms of weaker job numbers and elevated inflation, is not the beginning of Trump-induced stagflation but a temporary wobble.
By next year, Roubini says, US growth will recover as monetary easing on the part of the Fed and fiscal stimulus from tax cuts plus tailwinds from AI-related capital expenditure bolster growth.
And as for the AI-fuelled bull run on stock markets, Roubini believes there is no inevitable bursting of this bubble.
“If US potential growth rises meaningfully as AI adoption advances, equity valuations need not imply a bubble,” he says.
Roubini even posits the idea that markets – including what many see as stretched valuations – may be undervaluing the long-run earnings power embedded in faster productivity growth.
“If potential growth trends toward 4 per cent while long rates remain contained by supply-driven disinflation, the ‘sentiment spread’ shifts toward the optimism regime,” he says.
Roubini also dismisses the widely discussed decline of the US dollar, for the same set of reasons. The US economy will accelerate while Europe stagnates with a commensurate strengthening of the dollar over the euro.
[ Ten potential economic disasters loom, warns top US economist Nouriel RoubiniOpens in new window ]
Dr Gloom has morphed into Dr Boom.
On the other side of this frothy forecast sits US investor Michael Burry, portrayed by Christian Bale in The Big Short movie as a barefoot, thrash metal-listening investment Cassandra who also called the sub-prime crisis ahead of time.
Burry recently delisted his hedge fund – Scion Asset Management – warning that market valuations had become unhinged from fundamentals.
“My estimation of value in securities is not now, and has not been for some time, in sync with the markets,” he said in a letter to investors. Burry describes Tesla as a “ridiculously overvalued” company.
United in their pre-2008 forecasts, Roubini and Burry now have diametrically opposed views – a reflection perhaps of the volatile times we live in.
