What are your thoughts on other commodities?
We are concerned about base metals, because the slowdown of China may end up a hard landing, which implies that demand for things like copper and others could really sink. In the case of oil, we think the market can go slightly lower, say, toward $90 a barrel, but it’s probably not going much lower than $90, and $100 to $110 maximum; that’s the range for oil. Because demand is growing less and supply is increasing, you might have some softness in oil prices. But then there also is geopolitical risk. If there is a war between Israel and Iran, that could lead to an increase in the sale premium.
Soft commodities, especially agriculture and food, are slightly better supported and less cyclical. Emerging markets are still urbanizing and naturalizing, having high per capital income growth and having population growth with a few exceptions. Demand for food is going to rise over time.
Natural gas prices are going to go higher, as the U.S. starts exporting more. Prices are low in the U.S. and very high in the rest of the world. There’s a gap between very low U.S. prices and high global prices. That is going to be arbitraged.
Were you surprised at the GDP number that came out in late June? I saw you tweet previously that you thought it was actually under 1 percent.
At Roubini Global Economics, we have been much more cautious than consensus and policymakers about the U.S. and global recovery. We’re saying year-to-year growth is going to be barely 1.7, 1.8 percent. And next year, where people expect 3 percent growth, we said 2.4 percent. Guess what: Consensus at the beginning of this year was 2.3 percent, 2.4 percent. Now it’s 1.8 percent. So regarding next year—where three months ago consensus was at 3 percent, and we were at 2.4 percent —now consensus is down to 2.7 percent, and I think it’s going to be revised further downwards.
We have been, for many reasons, of the view that while the U.S. is recovering, there will be lots of head winds, starting with the fiscal drag and gridlock in Congress and the variety of weaknesses, particularly the household sector. We have been proven right. But in the short run, good news is good for the equity markets. And bad news is also good, because it leads to more and longer QE.
What’s your forecast for growth going forward?
Growth is going to accelerate in the second half and be very strong next year. We believe that growth is going to be slightly better in Q2 , and start to grow more in the second half. We expect tapering to start in December, with maybe the earliest start in September, and not being done next or late in the summer. Tapering could even start later than that if the economy in the second half of the year disappoints more than we expect. So it all stays contingent.