Nobel laureate economist Paul Krugman says financial markets have overestimated economic strength in their recent rallies.
Markets are pricing in a vigorous economic recovery that isn’t forthcoming, he said at a conference in Shanghai.
“It looks to me as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman said, according to Bloomberg.
“The market seems to be looking as if this is going to be an average recession, but it’s not.”
Optimism that fiscal and monetary stimulus around the globe will help economies bounce back has fueled big gains in stock prices.
The MSCI World Index has surged 37 percent since hitting a 14-year low March 9. The Standard & Poor’s 500 Index has jumped 34 percent during the same period.
As for stimulus efforts, the Group of 20 nations already has committed $2 trillion to jumpstart economic activity, Bloomberg estimates.
“Some of the measures that have been taken to deal with the crisis seem to be predicated on the belief that this is going to be a short, short recession,” Krugman says.
“Everything says that’s wrong, that this is going to be a sustained period of weakness.”
The International Monetary Fund appears to agree with Krugman.
Last month it lowered its forecast for the global economy’s performance this year to a contraction of 1.3 percent from January’s estimate of 0.5 percent growth.
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