The world economy needs a second stimulus if it is to avoid the fate of Japan in the 1990s when the country was stuck with years of sluggish growth, Nobel laureate and professor of economics Paul Krugman told CNBC Monday.

“The good news is that it does not look like the 2nd great depression. For a few months it did,” Krugman said.

All indicators now point to the fact that the plunge has stopped, as jobs in the US are lost at a smaller pace and manufacturing and services seem to be stabilizing worldwide, he added.

But the sources of future growth are hard to pinpoint as the financial crisis has left the world with excess capacity and the possibility of high unemployment everywhere, according to Krugman.

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