Tags: Goldman | Hatzius | Double-Dip | Growth | us | economy | pimco

Goldman's Hatzius: No Double-Dip, but Slow Growth for Years

Thursday, 19 May 2011 01:53 PM

Expect the recovery to last for years, not a double-dip recession as some fear, says Jan Hatzius, chief economist at investment bank Goldman Sachs. But that’s not necessarily the good news.

"There's still a long way to go. The unemployment rate is still 9 percent, we're nowhere close to a really tight labor market that usually predicates a recession, so I think we're still be in a recovery for a few years," Hatzius told CNBC.

Unemployment is falling and growth will remain “above trend,” although the Fed is likely to keep steady on interest rates. Falling commodity prices also mean less short-term risk of a return to recession, he said.

A Gallup poll on May 2 found that 55 percent Americans think the United States is still in either a recession or a depression. Officially, the last recession ended in June 2009, nearly two years ago.

It’s cold comfort, perhaps, that the definition of recession according to the National Bureau of Economic Research (NBER) is the moment when the economy bottoms and returns to expansion, even if that expansion is slow and uneven.

MohamedEl-Erian200ap-.jpg
Mohamed El-Erian
(AP file photo)
Of more concern is the idea that the recovery, however you define it, takes years to return the country to real growth, a condition leaders at bond giant Pimco have come to call “the new normal” of slow growth and grinding debt in the major economies.

Pimco CEO Mohamed El-Erian recently reiterated that position, predicting 2 percent growth in the advanced economies and continuing high unemployment, while the emerging economies enjoy more robust 6 percent growth.

He also warned that the advanced economies would begin to practice “financial repression,” the tactic of forcing returns on investment lower than inflation in order to escape decades of built-up debt.

“It is a world where several governments in advanced economies, and the U.S. in particular, opt for financial repression and mild inflation as the major way to accommodate their deteriorating debt dynamics,” El-Erian wrote in a recent Pimco report.

“It is a world that heals slowly and unevenly and remains structurally impaired.”

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Expect the recovery to last for years, not a double-dip recession as some fear, says Jan Hatzius, chief economist at investment bank Goldman Sachs. But that s not necessarily the good news. There's still a long way to go. The unemployment rate is still 9 percent, we're...
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Thursday, 19 May 2011 01:53 PM
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