The makings of the 2020 recession and financial crisis: forecasts revised and lessons learnt

Hello. My name is Brunello Rosa. I am the CEO and Head of Research in Rosa Roubini Associates and also a visiting professor at Bocconi University in Milan. Today I like to talk about how Nouriel Roubini and myself in 2018, we predicted the global financial crisis and recession that we are experiencing now in 2020, how we got to that conclusion already more than a year earlier than that, and if we have learned any lessons from that.

First part will be 10 reasons that we identified in 2018 for a financial crisis and a global recessions to occur in 2020. The second part will be what has actually happened in 2020. What is been happening now. Then we will revise the forecast that we did in 2018 to see what we got right, what we got wrong. Then fourth part is if we have learned the lessons of this and the previous crisis.

In November 2018, we provided 10 reasons for a financial crisis and a global recession to emerge in 2020.

I'm going to go through each of these 10 reasons one by one, but I want to give you an overview to begin with. We expected fiscal drag to start becoming binding in 2019. We expected inflation to continue rising and Fed tightening into 2019 and 2020. There were trade frictions ongoing. The beginning of the trade war between US and China and the rise of protectionism, which we thought will continue over time. There were other stag-inflationary policies that the US were adopting and we thought it would also continuing wars. But that wouldn't go unnoticed by China, which would retaliate against the US protectionism, at the time it was already slowing down. But in the world there's no just US and China, there's also Europe, which is in the middle between the two, which was already in the middle of a number of economic and political challenges, which in fact got worse. Then when we move into the financial sphere, we thought that equity markets we're already very frothy, together with other risky assets and therefore prone to downturn. The market was exhibiting levels of fragility that will make them prone to flash crashes as they had occurred just months before the time in which we made the prediction. Then moving into the more political risk/ geopolitics, we thought that in 2020 an electoral clear, Trump might be tempted by some geopolitical adventure, military interventions, for example, in Iran. Then when you put all these things together, we are aware that if there's a downturn, there's also the policy response. We thought at the time that the rise of populism would make it less viable than before. We will revisit how we did with these predictions at the very end of the talk.