Tagged: Growth lag

Worldwide growth could lag for a decade – paper

Reuters | Aug 27, 2010 | 10:45pm IST

It could be 10 years before economic growth in the United States and elsewhere returns to pre-recession norms and employment rates may never regain lost ground if past history is any guide, two prominent economists said in a paper presented on Friday. Carmen Reinhart and Vincent Reinhart, in a paper presented at an annual conference hosted by the Federal Reserve, found that growth in gross domestic product is significantly lower during the decade after a severe financial crisis that is felt world-wide, as was the case with the recent meltdown. Their assessment could damp the spirits of central bankers gathered at the annual Fed enclave in Jackson Hole, Wyoming, who are already anxious that the recovery from the painful recession has run out of gas and they may be forced to take further steps to stimulate growth.

The authors, a husband and wife team — she is an economics professor at the University of Maryland and he is a former director of the Fed’s division of monetary affairs who is now a resident scholar at the American Enterprise Institute — drew their conclusions from studying global and country-specific crashes, including the 2007 subprime mortgage collapse, the 1973 oil shock, and the 1929 Great Depression. Policy makers should consider that growth, employment and credit may never regain levels attained before 2007, they said. "Recent discussions about the ‘new normal’ in reference to the post-crisis landscape leave the impression that the pre-crisis environment was ‘normal,’" they wrote. "In fact, there are reasons to believe that the pre-crisis decade set a high water-mark distorted by a variety of forces."

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