Complex Made Simple

TOP CEO 2019: Professor Nouriel Roubini on global and regional economies

What to expect from global and regional economies from the expert that knows it all. All here.

The bad news about the global economy is that we are in a synchronized global slowdown There is a mobility revolution, with driverless cars and electric vehicles, and that's going to affect the demand for gasoline in a negative way When you have countries with zero natural resources, they invest in people, entrepreneurship, human capital and human allocation

Renowned economist and thought leader Professor Nouriel Roubini, Chairman of Roubini Macro Associates, a global macroeconomic consultancy firm in New York, laid out, in his Keynote address at TOP CEO 2019 Bahrain, plans for building Knowledge Economies in the GCC as part of their economic diversification. Prof. Roubini focused on the new global economic realities, the future of Fintech, digital transformation, energy prices and more.

Below is a summary transcript of what he said starting with his intro on volatility:

Volatility and uncertainty

“The topic of this conference is ‘Growth in a volatile future1’ and certainly we live in uncertain times. There are important technological uncertainties, such as artificial intelligence, machine learning,  robotics and automation, that will define the future of jobs. Also, there is great speculation on what's going to happen to energy markets in the long term taking into account US shale gas and the resurgence of renewables.”

“So there are lots of things are related technology and science, but also policy, political and geopolitical uncertainties.”

“On the policy side, what's going to be the outlook for monetary and fiscal policy, or trade policies or structural policies in advanced economies and emerging markets?”

“As far as geopolitical uncertainties, there is this new rivalry between US and China that may lead to another cold war. There's a wide range of geopolitical uncertainties in the Middle East that can affect the economy, markets, and energy prices.”

“The bad news about the global economy is that we are in a synchronized global slowdown in the US, Europe, Japan, China, emerging markets, and even in this part of the world. But most likely there is a limited economic recession in the next 12 months as those global headwinds that markets we're worried about will most likely, in the next few months, fade away.”

“A Chinese slow down is not in the cards and a trade war between the US and China will most likely, in next few weeks, reach an agreement, and there is no escalation of this trade war.”

“We don't know what's going to happen with Brexit, but there is no hard Brexit as no one can afford that.”

Oil and energy impact

“From the point of view of this region, one of the important factors is the movements of oil and energy prices, and some of these depend on the outlook for the global economy.”

“In the first half of last year, when the global economy was expanding, oil prices rose way above $70 per barrel, but by the fall of last year, with worries of a global economic slowdown, oil prices sharply fell all the way to $40 per barrel. And now, with some of the tail risk on the global economy seeming to be fading away, oil prices have been rising again, towards around $65.”

“When all prices are higher, growth is stronger in the region and vice versa. So one of the challenges for this region is how to diversify your economies.”

“The trend for energy prices is low rather than high for several reasons. Reason number one is shale gas and the oil revolution in the United States. An increase in supply over time is going to depress energy prices. Secondly, there is a number of new players who are not  that are increasing supply and weakening OPEC's hold on the market. Additionally, there is a wider range of energies called green energy, not based on fossil fuels, and the share of that energy is gradually going to increase over time helped by worries over global climate change. Finally, there is a mobility revolution, where over the next few decades we’re going to see driverless cars and electric vehicles, and that's going to affect, of course, the demand for gasoline in a negative way.”

“What's the trend over the next 10-15 years? Most likely oil prices may be lower than it is right now making the case stronger for diversification.”

“A Technological revolution in the global economy is taking place with digitization, robotics, transformation, AI, machine learning, IoT and others, and the future growth will have to do more with knowledge, innovation, technology, and less than, say, natural resources.”

Types of future tech:

ET: Energy technologies such as green economies and renewable resources

BT: Biotechnology revolution, in the field of medicine, science and biology (live healthier and longer)

IT revolution: such as AI cloud computing

MT: Manufacturing technology such as robotics, 3D printing, and personalized manufacturing

TT: Transportation technologies such as EVs, autonomous cars

FT: Fintech technologies such as massive innovation with AI, machine learning, big data, and IoT to revolutionize payment systems (Ali pay, Apple pay, Paypal), credit allocations, insurance, capital market services, asset management.

Note on Bitcoin: with Bitcoins, one can make 5 transactions per second, while Visa does 25,000 per second with a system used by billions.

People and transformation
“People and labour forces need to be more educated using STEM, computing. Knowledge, ideas, and information will matter more.”

“When you have countries with zero natural resources, they invest in people, entrepreneurship, human capital and human allocation such as in places like Hong Kong, Singapore, Japan and South Korea.”

“There is what's called the natural resources 'curse' such as when a country has a lot of natural resources and resulting in a negative outcome for that nation. A case in point is Venezuela which in 1970 had a higher per capita income than Saudi and is now an economic disaster.”

“Luckily, Saudi and the GCC have used their wealth in a successful way, investing in infrastructure, people, institutions, diversification and transformation.”

“What are the conditions for greater economic diversification? Infrastructure, knowledge economy, ICT, education, human capital, vocational training, STEM, business environment, fewer regulations, improving insolvency, social and political stability, competitive private sector, access to finance for SMEs, and openness to FDI.”

“The direction is positive in the region. But it takes time to achieve diversification.”

“The challenge is as urgent as ever because of youth unemployment where there is a huge bulge.”