Paul Krugman, the Nobel Prize-winning economist, says that there is a 30% to 40% chance that the U.S. economy will slip back into recession in the latter half of 2010.
“It is not a low probability event, 30 to 40 percent chance,” Krugman told BusinessWeek. “The chance that we will have growth slowing enough that unemployment ticks up again I would say is better than even,” he added.
Krugman said the winding down of the government’s stimulus efforts are the reason we could see a double-dip recession.
“Stimulus we know starts fading and goes negative around the middle of the year,” he said. “Inventory bounce, which is driving things right now, will fade out as inventory bounces do.”
Mortgage rates may well rise as the government’s rescue and stimulus plans wind down, Krugman added, leading to declines in home sales and home prices.