Roubini says US recovering, calls for fiscal consolidation

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A recovery from the global financial crisis is under way in the US and the rest of the world, believes Nouriel Roubini, the economic forecaster credited among the people who foresaw the economic tumult.

The ace economist, chairman of Roubini Global Economics, spoke to CNBC on Wednesday in Davos where he is attending the World Economic Forum.

Roubini, however, said the economic recovery would be "slow, anaemic and U-shaped".

The US, the world's single largest economy in the world, was battered by a subprime mortgage crisis as a result of a bust in housing prices that led to a global slowdown. The government and the US central bank, the Federal Reserve, had to intervene with massive fiscal bailout and stimulus packages from preventing major banks from bankrupcty and to avert a collapse of the financial system.

However, now, Roubini said, the US has a tough job on its hand: "It has to withdraw the stimulus packages or else it runs the risks of runaway fiscal deficits and sovereign defaults in the future. [But if it withdraws] too soon, it also runs the chances of hampering the recovery," he said. "I would like the US to lay down a path of return of fiscal consolidation in the medium term."

"I believe that growth in the US would be better in the first half than in the second as that is when it would look to exit its accommodative policy," Roubini said.

The growth outlook for emerging economies, unlike those in the advanced nations, was strong, "because the financial policies there are sound."

Roubini though warned against a potential build-up of asset bubbles in emerging markets.

Stock markets in emerging countries like China, India and other countries have seen a phenomonal run-up after reaching lows in March last year.

Late in 2008, the Chinese unveiled a USD 580 billion stimulus package to boost its economy and many experts are of the view that the roaring rally seen in stocks, commodities and property - fuelled by the massive liquidity infusion - are early signs of a bubble.

- Report by Nazim Khan