U.S. and European economies are embarking on a Lost Decade similar to what Latin America faced a few years ago, with the best-case scenario involving weak growth rates, says Ilan Goldfajn, chief economist and partner at Itaú BBA and former Deputy Governor of the Central Bank of Brazil.
Consumers in emerging-market economies, meanwhile, will fill the void left by those in industrial nations.
"The best scenario for mature economies is one of slow growth with no major financial crises. I am still evaluating the consequences of the deleveraging processes, and I’m not yet sure, but the Latin American experience has me convinced that they last at least a full decade," Goldfajn writes in a Wall Street Journal piece.
Like Lost Decade that plagued Latin America with recession and inflation in the 1980s, the one that will grip mature economies comes as the result of carrying too much debt for too long.
Cuts in spending, meanwhile, are easier said than done. Look to the debt-ceiling debate as an example.
"The debt-ceiling debate in the U.S. evinced a lack of consensus on how to manage (future) austerity in order to stabilize debt. Democrats prefer higher taxes, while Republicans want lower spending. Quick approval of a fiscal adjustment will be very difficult. There will be years of back and forth in the process of digesting the excess debt," Goldfajn adds.
Others say the entire world is due for a lost decade of slow growth even if widespread recession can be avoided.
"We are probably faced with a lost decade. It is already obvious that growth rates are going to be low," says former Russian Finance Minister Alexei Kudrin.
"The fight with a fading of growth is going to take many years, most likely 5-10 years," Kudrin says, quoted by the Interfax and RIA Novosti news agencies, the AFP newswire reports.
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