Economic woes in Europe could spread to the U.S. and lead to a further correction in stock prices, Nouriel Roubini, chairman of Roubini Global Economics, told CNBC on Monday.
The weaker euro will affect US exports, the widening of credit spreads will push up bond yields, risk aversion has been rising and bank spreads affect the euro-dollar Libor rate, Roubini said.
"What is happening in the euro zone right now is going to have a negative effect on U.S. economic growth," he predicted.
"There's contagion coming from Europe to the U.S., that's a first thing," he said. Secondly, "too many governments decided to do fiscal austerity too soon."
"A double-dip recession looks likely in the euro zone, it looks like Japan right now is falling off the cliff … and now there is evidence of a slowdown in economic growth also in China," Roubini added.
Fiscal austerity is needed in Greece, Spain and Portugalbut countries like Germany, Japan, China, should be doing fiscal stimulus, he said.
Because of economic problems in Europe and Japan, there is a risk of a further fall in stock prices, according to Roubini.
"I'm a little bit worried about stocks," he said, noting that half of the profits of S&P 500 companies come from abroad.
"Slowdown at home, slowdown abroad, in my view there is a risk of a further correction."
But Peter Toogood, head of investment at Old Broad Street Research, said solid companies will be winning in the current slowdown because they will not have competition from other companies that have been funded with cheap money.
People will also save more and eventually there will be a positive outcome for cheap assets, so now is the time to buy stocks, Toogood said.
"I love what's going on now," he told CNBC. "I've never seen such a collective set of misery … just ignore them. Ignore them now."
"Look through it. Buy the cheaper, more stable companies. They're very, very cheap," Toogood added.
'Everything Is Uglier'
The US needs fiscal tightening over the longer term but taking away fiscal stimulus now would take the economy back into recession, Roubini warned.
He said he does not expect a double-dip recession in the US, but economic growth is likely to fall to 1.5 percent by the second half of the year, and when growth is so low, "everything is uglier."
The budget deficit will be higher, unemployment will keep rising and home prices will keep fallingin such a weak scenario, according to Roubini.
"It's going to feel like a recession even if technically we are not going to be in a recession because 1.5 percent growth is dismal, anemic," he said.
At this stage in the recovery after the crisis, growth should be between 5 and 6 percent, he said.
"Final demand is not growing in the US, there's risk of a severe economic slowdown," he added.
Companies, on the other hand, "are flush with cash because they became lean and mean by cutting costs" but by laying off staff, they reduced demand which in turn has left them with overcapacity, Roubini said.
Companies will do M&A, financial transactions and buybacks rather than a lot of capex spending, he said.
Roubini added he does not expect "a massive increase in taxes" next year.