Krugman: High Chance of Double Dip Recession

Nobel laureate economist Paul Krugman says the economy may suffer another contraction next year.

“It’s a reasonably high chance, (though) it’s less than 50-50 odds,” he told ABC News.

The economy grew 2.2 percent in the third quarter.

“What we’ve got right now is a recovery that first of all isn’t showing up very much in jobs yet. It’s being driven by fiscal stimulus, which is going to fade out in the second half of next year,” Krugman said.

A rebound in inventories also has boosted the economy, he notes.

“Production was low because companies were running on their inventories,” he said.

“They’re stopping doing that, so now you get a bounce in the economy, but that’s also going to run out. The things we know about are all going to be negative in the second half of next year.”

Financial markets, of course, say differently.

“The financial markets in the last month have gotten really optimistic,” Krugman notes.

“You look at things like the term spread (yield curve) on bond rates. They suggest that the financial markets really think there is going to be a much more vigorous recovery.”

But Krugman disagrees. “I don’t see where it’s supposed to come from.”

Harvard economist Martin Feldstein is even more bearish than Krugman.

He says weakness in the consumer sector indicates the recession isn’t over yet. “2010 is going to be a very weak year,” he told Bloomberg.

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