Roubini Expects Stocks to "Sharply Correct" With GDP "Well Below" 1% in Q3

Nouriel Roubini, the New York University economist who predicted the global financial crisis, said U.S. growth will be “well below” 1 percent in the third quarter and put the odds of a renewed recession at 40 percent.
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 percent “at best.”
“All the growth tailwinds of the first half of the year become headwinds in the second half,” he said in an e-mail message, including 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 home buyers.
In the best scenario, he said he 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 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen 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.
The Commerce Department may report revised figures in two days showing the economy grew at a 1.4 percent pace in the second quarter, according to the median estimate of economists surveyed by Bloomberg News. That’s down from an earlier estimate of 2.4 percent, because of a widening trade deficit, a smaller buildup of inventories and weaker construction.