Green shoots set to wither, warns Nobel Prize winner

David Prosser
Tuesday 26 May 2009 00:00
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The global economy may finally be bottoming out but there is little prospect of any imminent recovery, Paul Krugman, the Nobel Prize-winning economist said yesterday.

Mr Krugman, an economics professor at Princeton University in the US, who has often been one of the most gloomy commentators on the global slowdown, said most data suggested the contraction was beginning to come to an end, but said he could not see what would lead the economy back to health.

"Just about all of the economic indicators out there are suggesting that the freefall has come to an end, that we've stabilised, and probably the worst of the shocks is over," said Mr Krugman.

"I don't think we've hit bottom, but the bottom is not too much further below us. My big concern is that we don't hit the bottom and bounce, we hit the bottom and stay there. It's not obvious where the recovery comes from."

Mr Krugman, who has previously accused President Barack Obama's administration of "half measures" by trying to tackle the slowdown with fiscal stimulus packages, repeated his warning that the US had not yet pumped enough money into the economy to sustain a recovery. Without further aid, the economy could remain depressed for five years, he cautioned.

Mr Krugman now expects the value of the dollar to fall against other global currencies, as its safe-haven status becomes less important to investors. However, he said there was little prospect of America recovering on the back of rising exports, because while a less valuable dollar would make US goods more affordable, the global nature of the downturn meant there was depressed demand around the world.

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