Economists warn of double-dip
Updated: 2011-08-26 08:03
By Fu Jing (China Daily)
LINDAU, Germany - The global economy is at great risk of a double-dip recession as the major economies tighten their fiscal spending to fight the debt crisis, instead of creating jobs and boosting growth, said Nobel economics laureates.
Professor Peter Diamond, a 2010 Nobel laureate from Massachusetts Institute of Technology in the United States, said there was "a general risk" that the global economy would experience a double-dip, though he could not predict when.
Diamond said his conclusion was based on two factors - the European sovereign debt problem and the fact that too many governments have focused too much on the debt crisis, instead of unemployment.
"All these tight fiscal policies are not good for the economies in the US and Europe, which will affect other countries which depend on external demand," Diamond said in an interview with China Daily at the ongoing Lindau Nobel Laureate conference.
Professor Wolfgang Schurer, vice-president of the Council for the Lindau Nobel Laureate Meetings, said the recent market turbulence suggests that the global economy is "very close" to a double-dip recession though opportunities remain to mitigate its impact.
Schurer said his conclusion was based on the combination of public debt, relatively fewer employment incentives and the continuing crisis in financial institutions.
Nobel laureate Robert Mundell said the ongoing global financial turmoil is leading the world's economy into a double-dip slowdown,but this will not result in a recession.
"I think we're in a double-dip slowdown but I don't see a recession coming," said Mundell, a professor of economics at Columbia University.
Mundell said he hoped the European debt crisis could be resolved by the end of 2012.
He suggested that Poland, the current holder of the European Union's rotating presidency, should consider putting off its entry to the eurozone.
Fellow Nobel Prize winner William Sharpe said it will take time to fix the global financial system given its growing complexity in the Internet era.
"The market is trying to assess the possibility of another recession," said Sharpe, a professor at Stanford University.
"But we are in a very difficult time, even those people inside the system even have trouble in fully understanding the complexity. Computers, financial innovations have all added to the complexity."
Sharpe said regulatory bodies in the US and Europe have taken measures in banking system reform by streamlining them and setting higher capital requirements.
"But the banks can move to other parts of the world which don't have such requirements so a lot of coordination worldwide and international cooperation are needed to stop risks and crisis," Sharpe said.
The laureates' warnings came as financial giants UBS and Citigroup lowered their forecasts for global growth.
UBS slashed its global gross domestic product (GDP) growth forecast for 2012 to 3.3 percent, while Citigroup cut its global GDP growth view for 2011 to 3.1 percent from 3.4 percent, and for 2012, to 3.2 percent from 3.7 percent.
Citigroup, however, said it does not currently expect recessions in the major economies as this slowdown in economic growth is not enough to reverse global profits.
Reuters contributed to this story.
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