Sunday, December 27, 2009

Krugman: Another Contraction Possible

by Bill McBride on 12/27/2009 09:39:00 PM

From ABC News: Krugman: 'Reasonably High Chance' the Economy Will Contract (see link for short video)

After being asked about Stiglitz suggestion that the economy might contract in the 2nd half of 2010, Paul Krugman responds:

Yeah, its a reasonably high chance - its less than 50/50 odds - but we have now a recovery that ... is being driven by fiscal stimulus which is going to fade out in the 2nd half of next year, and by inventory bounce ...
On the fading out of stimulus, Menzie Chinn writes: Levels versus Growth Rates and the Impact of ARRA with a graph of the impact on GDP level and GDP growth from the stimulus. Professor Krugman has a good explanation too: Stimulus timing

Note: I discussed the transitory impact of changes in inventory yesterday: Inventories and Q4 GDP