May 12 (Bloomberg) -- Paul Krugman, Princeton University’s Nobel Prize-winning economist, said global economic prospects don’t justify the two-month rally that has restored $8.9 trillion to stock markets around the world.

Speculation government spending packages and interest-rate cuts worldwide will reinvigorate the global economy has helped the MSCI World Index rally 37 percent since falling to its lowest since 1995 on March 9. The U.S. Standard & Poor’s 500 Index surged 34 percent in that time.

“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman, 56, said at a forum in Shanghai today. “The market seems to be looking as if this is going to be an average recession, but it’s not.”

Krugman, who won the 2008 Nobel Prize for economics, joins New York University’s Nouriel Roubini in calling for a more cautious outlook on growth. Roubini said last week analysts expecting the U.S. economy to rebound in the third and fourth quarter were “too optimistic.” Nassim Nicholas Taleb, the author of “Black Swan,” said the current global crisis is “vastly worse” than the 1930s.

The International Monetary Fund said on April 22 the global economy will contract 1.3 percent this year, downgrading its January projection of 0.5 percent growth. A recovery will take longer than normal because the slump was precipitated by a worldwide financial crisis, the IMF said.

Stimulus Packages

Governments around the world have announced spending packages and cut interest rates to lift the global economy out of the worst slowdown since the Great Depression. The Group of 20 industrialized economies has already pledged more than $2 trillion, according to data compiled by Bloomberg.

“Some of the measures that have been taken to deal with the crisis seem to be predicated on the belief that this is going to be a short, short recession,” Krugman said today. “Everything says that’s wrong, that this is going to be a sustained period of weakness.”

The economist wrote in a New York Times editorial on April 16 that the “green shoots” for a recovery being cited by government officials and investors could “breed a dangerous complacency.”

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Stephanie Wong in Shanghai at swong139@bloomberg.net.

Last Updated: May 12, 2009 06:15 EDT