Nobel Economist Says Economy's Likely Hit Bottom

Helsinki, Findland, Sept. 21, 2009--Nobel economist Paul Krugman said the global economic downturn has probably hit bottom though the recovery will be “slow and painful.”

“The end of the world appears to have been postponed,” Krugman, a professor at Princeton University, said at a seminar in Helsinki today. The world economy, he said, is still in trouble and the outlook is uncertain.

Germany, France and Japan emerged from recession last quarter, adding to evidence some of the world’s biggest economies are over the worst. The U.S. recession probably ended in late July or August, Krugman said, after gross domestic product fell 1 percent in the second quarter from the prior three months.

Krugman noted that the truly "extraordinary thing” has been “the collapse of world trade,” and that he has doubts about the potential for exports to lead the global recovery and that the Chinese economy isn’t big enough to serve as a growth engine.

“The problem is that this is a global financial crisis,” he said. “How can we have an export-led recovery unless we find another planet to export to?”

While, last quarter’s drop in U.S. GDP was the fourth in a row, the longest contraction since quarterly records began in 1947, Krugman said the U.S. has $1.1 trillion in annual capacity “staying idle.”

The U.S. consumer “that’s been such an important driver of the global economy, is exhausted,” he said, forecasting U.S. unemployment may rise until early 2011.