Krugman says U.S. 'depressed economy' could last five years

By The Associated Press

SEOUL, South Korea - The United States may emerge from recession in a technical sense as early as this summer, though a likely worsening in labour conditions means a "depressed economy" could last as long as five more years, Nobel Prize-winning economist Paul Krugman said Tuesday.

"I think it's quite possible that industrial production in the United States and perhaps in the world as a whole will bottom out sometime in the next few months, that GDP growth in the United States will be positive in the second half of the year and maybe a little bit later than that in Europe," Krugman told participants at a global financial conference.

Krugman said he would not be surprised if the U.S. recession, which began in December 2007, ended in August or September this year. Deteriorating labour markets, however, are likely to continue into 2011, meaning "the period of a depressed economy" could last until 2013 or 2014.

Krugman, who teaches at Princeton University, won the Nobel Memorial Prize in Economic Sciences last year for his analysis of how economies of scale can affect international trade patterns. He also writes columns for the New York Times newspaper.

The U.S. economy, the world's largest, contracted a worse-than-expected 6.1 per cent annualized drop in the first quarter. Americans increased purchases of cars, furniture and appliances but businesses cut back spending and exports had their biggest drop in 40 years. The U.S. unemployment rate hit 8.9 per cent in April and many economists expect it to reach 10 per cent by year's end.

Krugman said while economic indicators from around the world are improving, they suggest the pace of economic decline has only slowed.

"I share the optimism that the worst of this may be over," he said, also noting a stabilization in financial markets.

"What's really hard, however, is to say when does this go beyond stabilization to an actual recovery."