Worst behind us but more stimulus needed: Roubini

By Walter Brandimarte

NEW YORK (Reuters) - Nouriel Roubini, one of the few economists who accurately predicted the magnitude of the financial crisis, said on Thursday that the worst of the turmoil has passed.

But Roubini emphasized the United States will still need a second fiscal stimulus, possibly by the end of this year, as the unemployment rate quickly approaches 10 percent.

Developed economies are bottoming out or close to doing so, but the recovery will be anemic, 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 U.S. 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."

Stock markets rallied after some news reports quoted Roubini as saying the recession will be over this year and that his economic outlook had improved.

He issued a statement late Thursday that "despite those reports -- however -- my views expressed today are no different than the views I have expressed previously. If anything, my views were taken out of context."

During the event, Roubini said U.S. labor 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.

SEES 10 PCT JOBLESS RATE BY YEAR END

The economist expects U.S. unemployment will top 10 percent 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 U.S. fiscal sustainability, with "severe" negative consequences for bond markets.

Asked about the economic impact of a potential collapse of embattled U.S. lender CIT Group, Roubini said the company should be allowed to go bankrupt if it is insolvent.

"I don't think it can have systemic effects such as Lehman (Brothers)," he said, adding, however, that other institutions would need to step up to ensure credit continues to flow appropriately to small and medium-sized companies.