Nobel laureate warns of double dip

REYKJAVIK, Iceland: US economist Joseph Stiglitz, winner of the 2001 Nobel Prize in economics, warned that the global economy could suffer a double dip, a pronounced rebound giving way to another slide.

“It is difficult to know whether or when there will be a W,” as such a course of events is often described, Stiglitz told Agence France-Presse here on Monday.

“There are a number of substantial risks to the economy going forward. The risk to the financial sector, for instance, from commercial real estate . . .

“And there are risks to the real sector caused by states having a shortfall of revenue and the withdrawal of [government] stimulus packages in 2011 will be a negative shock to the economy.”

Consumers not spending

Stiglitz, former World Bank chief economist and an advisor to US former President Bill Clinton, said household balance sheets had been “destroyed,” which has meant that “savings have gone up from zero to 7 [percent to] 9 percent.”

A rising savings rate cuts into consumer spending, which is responsible for roughly two thirds of US economic growth.

An “inventory adjustment” is under way, as companies build up their stocks, Stiglitz said.

But “because of the uncertainties, people are not hiring, unemployment is very high and foreclosures are likely to remain high,” he said.

“The result of this is that if these negatives I have described play out, which is very likely, when the inventory readjustment is over, the economy will go into a double dip.”

Critic of IMF policies

Stiglitz has been a sharp critic of policies advocated by the International Monetary Fund, contending that they aggravate crises and impose public hardship.

Iceland, which had suffered mightily in the current global downturn, last October needed a $2.1-billion rescue loan from the IMF.

Stiglitz in a speech at the University of Reykjavik maintained that Iceland had in fact received gentler treatment from the IMF than had other countries, sparking resentment, for example, in Thailand, a Fund recipient in the late 1990s.

“The program in Iceland has been very unusual for the IMF and you should recognize that, that they did not follow the standard prescription that they did in most of the world, which would have been immediate fiscal contraction, no capital controls and very high interest rates.

“You should understand that, that you got more generous treatment has caused a lot of resentment in the rest of the world. I was just in Thailand and people were saying ‘double standards, you treat people in Europe better than you treat people in Asia.’

“So you should understand that there are consequences of the fact that you have been treated a little bit better.”

Recovery ‘not real’

Meanwhile in Geneva, Agence France-Presse reported that a UN think tank on trade warned that the current financial market rebound is not a “real recovery” and that any world economic growth recorded in 2010 was unlikely to exceed 1.6 percent.

“The depth of the recession has been so important that of course there will be a rebound . . . but we still do not see that this is a real recovery,” Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD) said also on Monday.

“The actual increase in the commodities prices is mainly driven by appetite for more risk,” he added.

This appetite could also be “reversed at short notice, depending on the pace of recovery and financial market sentiment.”

Improving economic data including slowing job losses have been heralded by financial markets as green shoots of economic recovery, but UNCTAD poured cold water on the optimism. — AFP