CORRECTED - World economy stabilising, says Krugman

(Corrects paragraph 10 to read 'cap-and-trade system' instead of 'capping grade system')

ABU DHABI (Reuters) - The world economy has avoided "utter catastrophe" and industrialised countries could register growth this year, Nobel Prize-winning economist Paul Krugman said on Monday.

"I will not be surprised to see world trade stabilise, world industrial production stabilise and start to grow two months from now," Krugman told a seminar.

"I would not be surprised to see flat to positive GDP growth in the United States, and maybe even in Europe, in the second half of the year."

The Princeton professor and New York Times columnist has said he fears a decade-long slump like that experienced by Japan in the 1990s.

He has criticised the U.S. administration's bailout plan to persuade investors to help rid banks of up to $1 trillion in toxic assets as amounting to subsidised purchases of bad assets.

Speaking in UAE, the world's third-largest oil exporter, Krugman said Japan's solution of export-led growth would not work because the downturn has been global.

"In some sense we may be past the worst but there is a big difference between stabilising and actually making up the lost ground," he said.

"We have averted utter catastrophe, but how do we get real recovery?