Seoul: The United States may emerge from recession in a technical sense as early as this summer, though a likely worsening in labor conditions means a “depressed economy” could last as long as five more years, Nobel Prize-winning economist Paul Krugman said on Tuesday.
“I think it’s quite possible that industrial production in the United States and perhaps in the world as a whole will bottom out sometime in the next few months, that GDP growth in the United States will be positive in the second half of the year and maybe a little bit later than that in Europe,” Krugman told participants at a global financial conference.
Krugman said that he would not be surprised if the US recession, which began in December 2007, ended in August or September this year. Deteriorating labour markets, however, were likely to continue on into 2011, meaning “the period of a depressed economy” could last until 2013 or 2014.
Krugman, who teaches at Princeton University, won the Nobel Memorial Prize in Economic Sciences last year for his analysis of how economies of scale can affect international trade patterns. He also writes columns for The New York Times.
The US economy, the world’s largest, contracted a worse-than-expected 6.1% annualized drop in the first quarter. Americans increased purchases of cars, furniture and appliances, but businesses cut back spending and exports had their biggest drop in 40 years. The US unemployment rate hit 8.9% in April and many economists expect it to reach 10% by year’s end.
Krugman said that while economic indicators from around the world are improving, they suggest that the pace of economic decline has only slowed.
“I share the optimism that the worst of this may be over,” he said, also noting a stabilization in financial markets. “What’s really hard, however, is to say when does this go beyond stabilization to an actual recovery.”