The world economy may face near-stagnation for 10 years similar to Japan’s “lost decade” in the 1990s, Nobel Prize-winning economist Paul Krugman said today.
"The world as a whole looks quite a lot like Japan during its lost decade," Mr Krugman (56) told a forum in Taipei.
"I am very optimistic about the world in, let's say, 2030; it's the next 10 years or so that have me worried."
While the odds of a repeat of the Great Depression of the 1930s have fallen, the global economy faces weak private demand and persistent high unemployment in the US and Europe, Mr Krugman said. His prediction of a protracted slowdown echoes comments by Citigroup's James Wolfensohn, who's a former World Bank president, and fellow Nobel laureate Joseph Stiglitz.
Asian stocks fell today after US retail sales declined, while Bank of England Governor Mervyn King predicted yesterday "a relatively slow and protracted recovery" for the UK.
"The odds of a full repeat of the Great Depression have, in my mind, fallen from maybe 20 per cent a couple of months ago to maybe 5 per cent now," said Mr Krugman, who won the Nobel Prize in 2008 for his work on trade theory.
Similarities with Japan's past problems included a troubled financial system, weak demand and "helpful but limited fiscal support", he said.
In some ways, the global recession is "worse than Japan in its lost decade" because the initial slump was deeper and, unlike Japan, the world can't trade its way out, Mr Krugman said. "If the world as a whole is going to run a large trade surplus, we have to find another planet to trade with."
The world economy may "bottom soon" after declining at a slower rate, Mr Stiglitz said yesterday in Beijing.
"We are at the end of the beginning, rather than the beginning of the end," Mr Stiglitz said. "The global economy may be declining at a slower rate and we may see a bottom soon, but it doesn't mean a full recovery."
Mr Wolfensohn, chairman of Citigroup's international advisory board, sees "no quick fix".
"The debate will continue on whether it's going to be a V, U or L-shaped recession," he said at a forum in Shanghai yesterday evening. "My own judgment is that it's more likely the latter."
Bloomberg