MercoPress. South Atlantic News Agency

Roubini proposes another stimulus plan to contain US unemployment

On of the few economists to predict the financial meltdown, Roubini believes the worst of the 24 months recession is coming to an end.

New York University professor Nouriel Roubini, one of the few economists who accurately predicted the magnitude of the financial crisis, reiterated on Thursday that the worst of the turmoil has passed. But also emphasized the US will need a second fiscal stimulus, possibly by the end of this year to face two digits unemployment.

Developed economies are bottoming out or close to doing so, but the recovery will be anaemic, with the United States remaining in recession throughout the year, said Roubini, who is chairman of RGE Global Monitor.

“There is light at the end of the tunnel, there is a bottoming out of the US and of the global economy. And the light at the end of the tunnel for once is not an incoming train” Roubini told investors at an event organized by the Chilean government in New York.

“In many ways, the worst is behind us in terms of economic and financial conditions.”

During the event, Roubini said US labour markets will continue to deteriorate until the end of the year, forcing the government to deliver a second fiscal stimulus that could be in the range of 200 billion to 250 billion US dollars.

The economist expects U.S. unemployment will top 10% by the end of 2009, weighing on domestic consumption and the retail sector.

“I think we may need, in fact, a fiscal stimulus some time early next year or before the end of this year,” he told reporters after delivering a speech at the event. ”It might be in the 200 (billion) to 250 billion range -- not too small, not too big,“ he added.

If the next stimulus is too large, Roubini warned, financial markets would start to get worried about US fiscal sustainability, with ”severe“ negative consequences for bond markets.

Roubini also pointed out that while developing economies in general will have a sub-par recovery during the next couple of years emerging countries are in better shape to exit the recession faster.

After 10 years of sound macroeconomic policies and reduction in public debt levels, he noted, many emerging economies were able to implement countercyclical policies for the first time, which will result in faster economic recovery.

”Today people are worrying more about sovereign risk in advanced economies than in emerging markets,“ Roubini said, calling it a ”shift in paradigm“.

Later in the day Roubini had to refute reports saying he had improved his economic outlook, arguing his comments at an investors’ conference earlier in the day were taken out of context.

”I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If as I predicted the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010,” Roubini said in the statement.