Geopolitical turmoil, such as the Russia-Ukraine conflict and multiple battles in the Mideast, didn't do much to derail financial markets this year, but that could change in 2015, says ace economist Nouriel Roubini of New York University.
Central bank easing has been strong enough to erase any negative impact from geopolitical troubles so far,
Roubini explained to Yahoo.
But while the Bank of Japan and European Central Bank will continue their heavy stimulus next year, the Federal Reserve and Bank of England will likely raise interest rates, Roubini said. And he expects geopolitical conflict to intensify.
"So far the impacts are more economic than financial," Roubini stated. "The conflict between Russia and Ukraine is affecting growth and exports in Germany and throughout Europe. You don't yet see the financial impact, but you can see the real economic impact."
He's also concerned about the Ebola epidemic and cyber attacks.
Roubini expects global growth for next year to be a little better than this year. "But that average doesn't mean much. Among advanced economies, U.S. and UK will to better, eurozone and Japan will be very mediocre. Within emerging markets, China will slow down sharply and there are a whole bunch of emerging markets will remain fragile."
However, he noted, some emerging markets will do better. "Those that are benefiting from being importers and those that aren't linked to China and instead to the United States."
Meanwhile, Richard Berner, director of the Treasury Department's Office of Financial Research says that though the U.S. financial system is in better shape than prior to the 2008-09 financial crisis, "that relatively benign backdrop is no cause for complacency."
"Rather, there is good reason to watch financial developments closely," he writes in a letter accompanying the
Office's annual report.
"Several threats to financial stability have risen over the past year," the report states. "First, we see material evidence of excessive risk-taking during the extended period of low interest rates and low volatility.
"Second, markets have become more brittle because liquidity may be less available in a downturn and the risk of asset fire sales and runs in short-term wholesale funding markets remains unresolved.
"Third, we are concerned that financial activity is migrating toward areas of the financial system where threats are more difficult to assess because information is not available, and that activity may be consequential."
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