Global recession may last 2-5 years: Japan's Sakakibara

The global recession could last 2 to 5 years, with hundreds of billions of dollars worth of stimulus packages in G20 countries not enough to pull the world economy out of the doldrums anytime soon, a former top official at Japan's finance ministry said on Thursday.
Recent stock market rallies were unlikely to be sustainable with major companies still in financial disarray, said Eisuke Sakakibara, who has been touted as a possible finance minister if the opposition wins an upcoming Japanese general election.
Any recovery in the global economy would most probably be "L-shaped rather than V-shaped", suggesting a long period of stagnant growth, Sakakibara, Japan's vice finance minister in the 1990s, told a forum at the Manila-based Asian Development Bank (ADB).
"What we are now experiencing in the world is a so-called balance sheet recession, which is what Japan experienced during the 1990s. "Corporations need to adjust their balance sheets, they have to reduce their liabilities, they have to repay their debts, they have to save more...This takes time.
"I am not saying that the world is now about to go into a lost decade, but it will at least take 2-5 years," said Sakakibara, known as "Mr Yen" for spearheading currency market intervention while serving in the finance ministry in the 1990s. "We will have a very stagnated sort of state of world economy for sometime to come." A Reuters poll of analysts across Europe and the US last month predicted the financial crisis will wear on for another year or more.
World leaders should focus stimulus measures on potentially high-growth sectors like medical services and green energy instead of infrastructure, he said. The aggregate G20 stimulus packages as of April 29 amounted to around 2.0 percent of GDP for 2009 for those countries, estimates by the International Monetary Fund show. Japan leads the way with 15.4 trillion yen ($162 billion) worth of fiscal stimulus.
A recovery in the global economy may possibly start in Asia, with China and India powering ahead, said Sakakibara, adding growth forecasts so far for both countries were too pessimistic. The ADB expects China and India to grow 7 percent and 5 percent this year, respectively.