`Global Economy Could See Recession Again Next Year`

“The global economy will begin recovering by achieving positive growth later this year, but we are paying keen interest to the possibility of a double-dip recession. We are not ignoring a scenario in which the global economy falls back into a recession next year.”

Hans Timmer, director of the World Bank’s Development Prospects Group, said this to The Dong-A Ilbo on the sidelines of a recent gathering of 45 economists at the bank’s headquarters in Washington, D.C.

Dong-A: Some say the economic crisis is over. Do you agree?

Timmer: It depends on the definition of recession. You can say the recession is over if you believe a recession means a situation in which economic production and growth fall. If we consider the soaring unemployment rate, however, we still have several massive problems.

Dong-A: Has the Korean economy shown robust growth?

Timmer: Korea’s economic recovery has been partly supported by the government’s economic stimulus package. Its economic growth, however, has also been boosted by its geological advantage as an East Asian nation. East Asian nations have been less affected by the disastrous developments in the United States and Europe.

Dong-A: Do you feel the Korean government has dealt with the economic slowdown appropriately?

Timmer: Its response has been swift and effective. The global financial crisis dealt a serious blow to Korea. After the collapse of Lehman Brothers, fears over capital outflow mounted in Korea but these worries were handled very swiftly and effectively. Nevertheless, we still have questions over Korea’s economic recovery is sustainable. Korea’s economic recovery has been supported by government spending and pump-priming policies. The question is whether the measures are sustainable. The private sector and domestic consumption should lead recovery. More importantly, Korea’s private sector should recover confidence that productivity will significantly grow for the next several years. If confidence is recovered, Korea can sustain growth.

Dong-A: Do you believe another economic crisis is possible?

Timmer: From a short-term perspective, major economies have made swift and effective responses to the economy. Over a long-term perspective, however, they still have big challenges, including dealing with the bubble in asset prices and the pursuit of balanced growth when the economy begins recovering. I’m not too worried over inflation over the short term. The world has eye witnessed the depth of the crisis for the past year but has not dealt with the root cause. The global economy will begin growing and recovering before the end of this year. But the possibility remains that many economies will see another slowdown when government support measures come to an end.

sechepa@donga.com