FORGET a quick recovery. Getting out of this global downturn is going to be 'a hard slog', cautioned Finance Minister Tharman Shanmugaratnam on Tuesday.
PHOTO: BLOOMBERGMr Tharman told investors, fund managers and corporate executives at the Nomura Asia Equity forum that while the worst may be over, the global economy is not yet staging a firm recovery and that any pickup will be slower than in previous recessions.
Investors should also be prepared for a slower-growth world and expect unemployment to stay high for an extended period.
'The weight of evidence suggests this is going to be a hard slog. The recovery over the next two years is going to be slower than previous recoveries, and we cannot rule out setbacks from time to time,' he warned.
Moreover, the American consumer, after two decades of unsustainably high spending, is saving more, while China's rising consumption still cannot make up for the shortfall.
Mr Tharman's 40-minute address at the Shangri-La Hotel touched on a broad range of issues, from microeconomic reforms for long-term growth to the limits of fiscal and monetary policy measures - the key tools governments typically use to influence demand.
He acknowledged that with the debt-burdened American consumer on the ropes, there will be a significant contraction of real consumption, which will also have an impact on Asia's growth.
Citing United States data, he said estimates are that if US household debt is brought down from the current 130 per cent of household income to a proportion of 100 per cent, it will require the household savings rate to rise from 4 per cent to 10 per cent over the next 10 years.
He added that gross domestic product expansion in Asia will likely fall to an average of 6.5 per cent over the next few years from 9 per cent during the 2002 to 2007 period.
The International Monetary Fund has forecast that developing economies will probably expand 1.6 per cent as a group this year and 4 per cent in 2010.
Read the full story in Wednesday's edition of The Straits Times.
A HARD SLOG
'The weight of evidence suggests this is going to be a hard slog. The recovery over the next two years is going to be slower than previous recoveries, and we cannot rule out setbacks from time to time.'
STILL NOT ENOUGH
'Chinese consumption growth is not ready to compensate for the US consumption growth. Even if they try their hardest, it's about one-sixth the size of US private consumption.'
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