Goldman Sachs senior investment strategist Abby Joseph Cohen said on Monday that risk aversion has eased, while inventory rebuilding and new business spending bode well for an economic recovery that could provide a dramatic surge in corporate profits by year end.

Cohen said a recovery in the U.S. economy from its worst recession since World War Two will not be V-shaped, and that cleaning up the nation's heavy credit burden will have a big impact on growth, especially for the consumer.

But Cohen told the Reuters Investment Outlook Summit in New York that corporate profitability could jump in the third and fourth quarters, when compared with the low baseline profits seen in the second half of 2008.

Capital markets, including still-tight credit markets, are moving back toward normal, she said.

Even with that kind of lackluster macroeconomic backdrop, we think there could be a dramatic surge in corporate profits in the third quarter, and especially in the fourth quarter, Cohen said.

Investors will have to look at parts of the economy that are likely to do well. She pointed to energy and economically sensitive areas, such as business spending on technology and new equipment.

Exporters will likely suffer for some time because the main U.S. trade partner, Europe, will pull out of a recession later than the United States and post slower growth, she said.

Cohen does not expect major announcements from a meeting of U.S. Federal Reserve policymakers next week. The Fed was likely do as little as possible for as long as possible, based on the economic data available to the central bank's economists.

Market fears of inflation are spectacularly premature, she said. We just don't see that inflation is going to rear its ugly head any time soon, she said.

The U.S. budget deficit will reach as much as $1.9 trillion, or 13.2 percent of gross domestic product, but the deficit will be a more manageable 6 percent of GDP in a couple of years, she said.

We believe that this fiscal year will be, by far, the worst, she said.

She also said that history is likely to show that Fed Chairman Ben Bernanke has been an extraordinarily effective leader during the current crisis, the worst U.S. recession since World War Two.

(Reporting by Jonathan Stempel and Herbert Lash; editing by Jeffrey Benkoe)