Economist Nouriel Roubini Warns of ‘Growing Stagflationary Storm’

Nouriel Roubini, professor of economics and international business at New York University, testifies on Capitol Hill in Washington, on Oct. 30, 2008. Win McNamee/Getty Images

Economist Nouriel Roubini has warned that advanced economies and emerging markets are facing a “growing stagflationary storm” following a string of aggregate supply shocks and rising costs.

Stagflation is a period marked by both rising inflation and increasing unemployment, something the United States has not experienced since 1980.

Writing in The Guardian, Roubini, a professor of economics and international business at New York University’s Stern School of Business, pointed to several events that have led to a current slump in the economy, such as the COVID-19 pandemic, which disrupted global supply chains and led to a labor supply crisis, and Russia’s invasion of Ukraine, which has further exacerbated energy prices.

“And now, China has ordered draconian Covid-19 lockdowns in big economic hubs such as Shanghai, causing additional supply-chain disruptions and transport bottlenecks,” Roubini wrote.

Yet the economist noted that even without these “short-term factors,” the “medium-term outlook would be darkening.”

“There are many reasons to worry that today’s stagflationary conditions will continue to characterize the global economy, producing higher inflation, lower growth, and possibly recessions in many economies,” he wrote.

The economist cited a retreat from globalization for the first time since World War II and a return instead to “various forms of protectionism,” by which governments implement regulations that restrict international trade in an effort to protect against foreign competition and boost domestic industries.

Rising geopolitical tensions and the consequences of supply chain issues that followed the pandemic are “likely to lead to more reshoring of manufacturing from China and emerging markets to advanced economies—or at least near-shoring (or ‘friend-shoring’) to clusters of politically allied countries,” Roubini said. “Either way, production will be misallocated to higher-cost regions and countries.”

An aging population in advanced countries as well as those in emerging market countries such as China, Russia, and South Korea will also see labor supplies further reduced, according to Roubini, which could further increase wage inflation.

“And because elderly people tend to spend savings without working, the growth of this cohort will add to inflationary pressures while reducing the economy’s growth potential,” he noted.

Roubini said that backlash against immigration, climate change—which could see crop-damaging droughts—and government policies aimed at mitigating the impact of climate change, such as aggressive decarbonization, could put further strain on the economy and lead to more energy price increases.

The economist also noted that governments have done little in the way of preparing for a potential future contagious disease outbreak that could again disrupt global supply chains, while cyber warfare also poses a threat as governments need to spend “hundreds of billions of dollars on cybersecurity” costs. Roubini said he believes those costs will ultimately be passed on to consumers.

Roubini’s comments come amid waning optimism over global economic growth prospects at a time when inflation levels are rising sharply across the world and are currently at 40-year-highs in the United States.

Bank of America’s monthly survey of fund managers released earlier in April found that optimism about the international economy is at an all-time low, with 26 percent of respondents stating that they see global recession as the top “tail risk,” leading to investors taking precautionary measures.

“These factors will add fuel to the political backlash against stark income and wealth inequalities, leading to more fiscal spending to support workers, the unemployed, vulnerable minorities, and the ‘left behind,’” Roubini said. “Efforts to boost labor’s income share relative to capital, however well-intentioned, imply more labor strife and a spiral of wage-price inflation.”