A former top Japanese currency policy official yesterday said the global economy was headed for its worst performance since World War II this year and next year, owing to uncertainties engendered by the European debt crisis and a fragile US economy.
Asian countries, including Taiwan, have to strengthen their intra-regional trade to reduce the economic impact of a declining West, Eisuke Sakakibara, popularly known as “Mr Yen,” told a media briefing before attending a forum in Taipei.
“The world’s economy is in quite a serious condition,” Sakakibara said.
He maintained a pessimistic view on the European economy, saying that the debt crisis was deepening, given a lack of consensus among EU members on finding a solution.
“I do not see any immediate exit for the European crisis,” he said.
The uncertainty arising from the debt problem might continue to drag down the European economy, heightening risks of a recession in another one or two years, Sakakibara said.
Although the US has been recovering in the past two years following the introduction of monetary and fiscal measures, Sakakibara said its economic prospects were not very optimistic.
“It is not unlikely the US may enter a period like ‘the lost decade’ [of Japan],” he said, adding that the phenomenon has been called “the Japanization of the US economy.”
Following the 2008 financial collapse triggered by Lehman Brothers, balance-sheet problems and risks of a financial bubble have hobbled the US, Sakakibara said.
The problems the US is facing are similar to those that confronted Japan in the 1990s, leading to the so-called “lost decade,” he said.
Sakakibara said he expected the Eastern economies, especially China and India, to be the world’s major growth engines over the medium and long term, as the global focus gradually shifts from West to East.
However, the Asian economy might still have a hard time decoupling from the US and Europe at the current stage, with China and India both facing a slowdown this year, he said.
Sakakibara said the emerging economies in Asia have to continue deepening trade integration to play a more important role in boosting the global economy.
He suggested investors shift their focus from the stock market to the bond market to lower risks.