The world isn’t in the midst of a V-shaped recovery, says economist Andy Xie.
Rather it’s W-shaped, and you can expect another downturn in 2012, thanks to the global debt crisis, he wrote on Chinese news service Caixin.
Economic growth was strong in much of the world last quarter, and the International Monetary Fund has lifted its global growth forecast to 4 percent for this year, notes Xie, former chief Asian economist for Morgan Stanley.
But all that glitters isn’t golden. “I think the current recovery is merely based on government stimulus and low-base effect,” he writes.
“Given the amount of stimulus spending, this is not a strong recovery.”
Moreover, as recent events have made quite clear, structural problems exposed by the financial crisis were merely covered up, not resolved, by stimulus spending, Xie says.
“This is why the recovery is not sustainable.”
The stimulus will produce inflation, he points out. And that inflation will in turn force central banks to raise interest rates.
“That will lead to another dip in the global economy,” Xie writes.
“I expect this second dip in 2012, which means we are en route to a W-shaped economic phenomenon, not a V-shaped recovery.”
New York University economist Nouriel Roubini expects a U-shaped recovery.
In the U.S., growth will likely slow to 2 percent in the second half of the year, as government stimulus fades, he told Yahoo.
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