(Repeats story initially transmitted late on Thursday) (Recasts; adds Roubini’s follow-up statement on media reports)
By Walter Brandimarte
NEW YORK, July 16 (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.
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 (CIT.N), 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.
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, Roubini said.
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.” (Editing by Jan Paschal)