Odds of a double-dip now at 40%, says NYU's Roubini

Nouriel Roubini, the New York University economist who predicted the global financial crisis, said U.S. growth will be “well below” 1% in the third quarter and put the odds of a renewed recession at 40%. Mr. Roubini, chairman of Roubini Global Economics LLC, said his forecast assumes the government will lower its estimate for growth in the second quarter to an annual rate of 1.2% “at best.” “All the growth tail winds of the first half of the year become head winds in the second half,” he wrote in an e-mail message, referring to the government's $814 billion stimulus plan, hiring for the census, and incentives such the cash-for-clunkers program and tax credits for first-time homebuyers. In the best scenario, Mr. Roubini expects an “anemic, sub-par, below-trend U for many years, given the need and process of deleveraging” by households, governments and the financial system. “With growth at a stall speed of 1% or below, the stock markets could sharply correct,while credit spreads and interbank spreads widen, and while global risk aversion sharply increases,” he 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,” he said, referring to two recessions in a quick succession.