The economist nicknamed 'Dr Doom' just gave a bleak economic outlook - calling China and Iran '2 big shocks' that will lead to 'severe recession'

REUTERS/Rick Wilking

Nouriel Roubini.

• America's disputes with China and Iran could spark a global recession next year, said Dr Nouriel Roubini, an economist nicknamed "Dr Doom" for his pessimistic predictions.
• "It's a bit of a scary time for the global economy," Roubini said in an interview with Bloomberg TV.
• He warned a breakdown in US-China trade talks and escalation in the US-Iran conflict could divide the world into two trading blocs, deliver a double whammy to global growth, and force central banks to spend their way out of trouble.
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America's disputes with China and Iran risk dividing the world and sparking a global recession next year, according to Nouriel Roubini, an economist nicknamed "Dr Doom" for his pessimistic predictions.

"It's a bit of a scary time for the global economy," Roubini said in an interview with Bloomberg TV. He warned a breakdown in US-China trade talks and escalation in the US-Iran conflict could cleave the global trade network in two, deliver a double whammy to worldwide growth, and force central banks to spend their way out of trouble.

The tentative truce between the US and China will collapse within months, Roubini predicted, as the two sides will fail to agree terms on trade, technology transfers, geopolitics, and other issues. The resulting cold war could cause widespread disruption, decouple the global supply chain, and split the world into two trading blocs, he said.

"This divorce is gonna get ugly," Roubini said. Companies and governments could end up choosing cars, robots, and other smart devices based on whether they contain US or Chinese technology. "Even the toasters are gonna have a chip that is 5G," he said.

Meanwhile, if rising tensions between the US and Iran break out into war, the disruption to oil supplies could drive up energy prices, Roubini said. Both the US-China trade war and the US-Iran conflict threaten to weaken economic growth and fuel inflation, meaning the global economy faces two potential stagflationary shocks. "Two big shocks...are gonna lead to a severe recession," he said.

Making matters worse, central banks could find their hands tied when the recession hits. Many have already slashed interest rates, piled up debt, injected funds into the economy, and bailed out industries in recent years, Roubini said, limiting their options and raising the risk of political backlash.

Out of desperation, they could turn to "radical, unconventional monetary policy" and "massive fiscal stimulus," he said, or "effectively what the proponents of modern monetary theory are suggesting."

"We will have the equivalent of helicopters dropping money," Roubini added.