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World Bank Chief Economist Warns of 'Lost Decade' for U.S., Europe

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Developing economies of the world are still showing robust growth, but that may not be enough to lift the sagging economies of the developed world which still account for 60% of combined global economic output, warns Lin Yifu, a World Bank senior vice president and chief economist.

Lin, in an interview in Washington with reporters from Xinhua, the Chinese government news agency, published today,said that while the possibility of a double-dip global recession exists, it remains relatively low. At the same time, he warned that the “advanced economies might experience a Japanese-like lost decade,” in which they would be trapped in a prolonged period of sluggish growth and high unemployment.”

To prevent this, he called for “short-term fiscal stimulus” to be provided to “projects that are conducive to eliminating long-term growth bottlenecks.” 

Lin said advanced economies like the United States and the European Union need to walk a “fine line” between short-term fiscal stimulus to reduce unemployment and long-term fiscal adjustment.

In a mild dig at anti-stimulus political attitudes currently prevailing in governments in both Europe and the U.S., he added that “Policymakers in developed countries should take global spillovers into consideration when adopting domestic policies.”

He said that sub-par growth in Europe and the U.S. this past summer had started to negatively affect financial markets, exports and the domestic economies of the developing countries, which of course could have a feed-back effect on developed nation economies.

Nonetheless, Lin expressed optimism that China, the largest of the developing economies, and the world’s second-largest economy after the U.S., could maintain its strong record of economic growth and job creation.

According to Lin, the U.S. and the E.U. have the financial resources to meet their current economic challenges. “What they lack now is not liquidity,” he says, “but political consensus and resolution.”

Meanwhile Lin, a native of China, warned that while developing economies -- particularly China -- can make significant contributions to global economic recovery, Chinese authorities need to remain alert to domestic inflationary pressures and asset bubbles. 



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