Roubini: Third-Quarter US Growth to Be 'Well Below' 1 Percent

Thursday, 26 Aug 2010 09:25 AM

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Growth in the United States will fall “well below” 1 percent in the third quarter, said Nouriel Roubini, a New York University economist.

The chances of another recession are at 40 percent, he wrote in an email to Bloomberg.

“With growth at a stall speed of 1 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases," Roubini said.

"Thus a negative feedback loop between the real economy and the risky asset prices can easily then tip the economy into a formal double-dip,” Roubini said.

Roubini, who is known as "Dr. Doom," told CNBC that the cash for clunks vehicle program and tax credits to buy homes have negatively impacted the economy.

The incentive programs, including the hiring of census workers, have resulted in headwinds, he told Bloomberg.

“All the growth tailwinds of the first half of the year become headwinds in the second half,” he said.

Even if the economy rebounds, Roubini predicts an “anemic, sub- par, below-trend U for many years given the need and process of deleveraging.”

Gluskin Sheff economist David Rosenberg said the economy is in a Depression similar to the 1930s one with periods of positive news such as positive GDP numbers, CNBC reported.

“Such is human nature and nobody can be blamed for trying to be optimistic; however, in the money management business, we have a fiduciary responsibility to be as realistic as possible about the outlook for the economy and the market at all times,” he said.

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