'Great Depression 2.0' avoided but recovery slow: Krugman

I / Kuala Lumpur August 10, 2009, 13:32 IST

The world has avoided a "Great Depression 2.0" but it will take at least two years for the global economy to make a full recovery, Nobel prize-winning economist Paul Krugman said today.     

Krugman said in a speech to an international business forum here that although the worst of the financial crisis was over, the world now faces a prolonged slowdown like Japan's "lost decade" of the 1990s.

"How do we get out? I think the technical answer is — God knows. We have a great shortage of role models," said Krugman, a professor of economics at Princeton University in the United States.     

 

Krugman said that in the past, swift economic recoveries saw affected countries export their way out of trouble, trading with countries with large surpluses.

"Unless we can find another planet to export to, we cannot have an export-led recovery from this global financial crisis, which means we have a serious difficulty," he said.     

Other possible solutions — consumer spending, business investment and housing booms are all unlikely to kick-start the US or world economy this time.     

"We seem to have avoided the Great Depression 2.0," Krugman said, but added: "I do believe that full recovery is at least two years and probably more than that off."