In an interview from Davos today, economist Nouriel Roubini told Bloomberg Television that the global economy could endure a second recession if governments withdraw too quickly from their stimulus policies.
But extending the stimulus too long is also dangerous, Roubini predicted, and could run up the deficit, lead to inflation and ultimately end in a "fiscal train wreck":
"My main scenario is one of a U-shaped economic recovery rather than a double-dip W, so I see the high probability of a slow recovery in advanced economies. But I also see risk of a double-dip rising, especially if there's a policy mistake like exiting too soon from the stimulus, or exiting too late, so that's a tough choice for policymakers."
Roubini said he is confident that policymakers in the U.S. won't end their stimulus policy too quickly. But he fears the risk of an early exit in the Eurozone, where monetary policy has been tighter.
And he indicated that the global recovery hinges in large part on how and when China withdraws from its stimulus. If China tightens too much, Roubini said, "there's going to be a market correction throughout Asia and also in other parts of the world."
Here's the full interview: