Advanced economies face years of anemic growth and the risk of a double-dip recession as their citizens cope with sluggish employment and highly indebted governments, economist Nouriel Roubini said on Monday.
A sovereign debt crisis in the euro zone has rattled financial markets in recent weeks as investors worry that fiscal austerity measures dictated by a $1 trillion European Union-International Monetary Fund rescue plan could stifle already hobbled global growth.
In contrast, some emerging markets risk overheating and are showing symptoms of a potential asset bubble.
Labor market conditions will remain very weak in some advanced economies, said Roubini, known as Dr. Doom and most famous for having predicted the U.S. housing crisis.
Savings will have to rise faster than consumption for the coming years. That is why growth will remain anemic, Roubini, who heads U.S.-based economic consultants RGE Monitor, told attendants at a seminar in Sao Paulo.
The global economy struggled with a credit crisis in 2008-2009, and investors worry that the fiscal crisis in the euro zone could hamper growth in advanced economies, which only recently began to recover.
Fears over the financial health of the euro zone intensified last week after Fitch Ratings downgraded Spain's credit rating by one notch, to AA-plus, in a sign that the crisis over Greece's debt problems was spreading to other euro nations.
Because the Spanish economy is far bigger than Greece's, a crisis there would have far more serious implications for the 16-nation euro zone and global growth.
Greece, Spain, Portugal and Ireland face serious competitiveness bottlenecks that could hamper their recovery, Roubini added.
In contrast to sluggish growth in advanced economies, the risk for emerging markets is overheating and asset bubbles, Roubini said.
Record-low interest rates in advanced economies last year pushed investors toward higher-yielding emerging markets so quickly that countries like Brazil slapped a tax on capital inflow to avoid an overvaluation of their currency.
Interest rates in advanced economies would remain close to zero for a longer time, Roubini added, and it was time for emerging markets to remove economic stimulus to avoid forming an asset-price bubble.
There is also a risk that economies would overheat in the so-called BRIC countries, Roubini said, which include emerging powerhouses like Brazil, Russia, India and China.
Economic activity in Brazil, Latin America's largest economy, for example, grew nearly 10 percent in the first quarter of this year, a new central bank indicator showed recently. Analysts and officials at international institutions like the IMF have flagged the risk that Brazil's economy could grow too quickly.
To be able to grow at more than 6 percent a year without fueling inflation pressure, Brazil would have to boost its infrastructure, improve business conditions and implement structural reforms.
Over the next years you have to push forward with a number of structural reforms to achieve six-plus (percent) growth a year, Roubini said.
There was also more room for gradual monetary tightening in Brazil to avoid inflation getting out of control, he said.
Brazil's economy is expected to grow 6.47 percent this year, according to the latest weekly central bank survey of local financial institutions.
Economists in the survey, however, kept their forecast for benchmark inflation steady for the first time in almost five months, betting the IPCA consumer index will close the year at 5.67 percent.
China's economic outlook, Roubini said, was full of mixed signals.
High inflation was a worry and there were signs of an asset bubble forming, he said. But steps by the Chinese to cool the economy could also be counterproductive, posing an additional obstacle to already sluggish global economic growth.
(Additional Reporting by Aluisio Alves; Writing by Ana Nicolaci da Costa; Editing by Padraic Cassidy)