Roubini Sees Significant Upside In India, South Korea, Germany. Analyzes the current tensions in Ukraine, China and elsewhere

March 03, 2014

Nouriel Roubini, is one of the most respected macro economists alive today. The NYU professor and chairman of Roubini Global Economics made his name by accurately predicting the collapse of the U.S. housing market, but it is his unparalleled insights into countries around the globe that make him a regular at the World Economic Forum in Davos and No. 4 on Foreign Policy's list of the "Top 100 Global Thinkers." He sat down with ETF.com recently to discuss where investors should be putting money to work today.

ETF.com: Ukraine dominates the news today. How will the tense situation in Ukraine play out?
ROUBINI: While there is still a certain amount of uncertainty in the Ukraine, the risk of an outright civil war or even of the breakup of the country has been reduced. The West has to be sophisticated in how it opens up to the Ukraine. There may be a possibility of having an economic relationship with the European Union, but it cannot be close enough that you antagonize Russia and make them feel geopolitical pressure. I see room for compromise.

Of course, the country is nearly bankrupt … and the Europeans and the U.S. do not want to give an unconditional bailout. Any bailout of the Ukraine will have to take place on the condition of macro adjustments and economic reforms that will be painful. Ukraine did not want to make those reforms before, even with a government that was not as corrupt as the one that has been just ousted. It will be very difficult, given the weakness of the economy, to impose those types of reforms and conditions, but those conditions are necessary to improve the economy over time.

ETF.com: Are the risks to the broader global and European economies minimized?
ROUBINI: The risks of cross-contagion are limited since things are not blowing up in Ukraine. Yes, Russia could block the gas pipelines to Ukraine, but those pipelines go to Western Europe as well. I don't think that Russia wants to antagonize all of Western Europe.

The economic impact is limited. Even Russia, with close ties to the Ukraine, has only one percent of its GDP exposed to Ukraine in terms of its direct exports. Some banks in the eurozone are exposed to Ukraine, from countries like Greece and Austria, but even those are limited.

It's still tense and volatile, but I expect it will be contained and the potential financial, economic and even political contagion effects will be limited.

 

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