Finance experts question recovery

Two leading City figures have questioned the current recovery painting a bleak picture where improvement is up to a decade away

In an interview with the BBC, the winner of the 2008 Nobel prize for economics Paul Krugman, warned that the economic slowdown could last between five and ten years. He also said that the recovery would be slow and "feel like a recession".

Speaking on the BBC's Hardtalk programme he reiterated his opinion that the US government should introduce a new stimulus package of $500bn to cure the world's ills. He believes that the current $800bn in spending is not enough to make a difference and that a further boost will become necessary. President Obama's plans have been curtailed, he said, as a result of political compromise.

Krugman's views were echoed by Neil Woodford, the well-known Invesco Perpetual fund manager, who said that a recovery is a "hell of a long way off". He warned that investors should be wary of the current rally in the stock market as the economic crisis has some way to go and could yet affect the markets. He said "there's been no recovery in the economy, there's been no increase in earnings and there's been no tangible sign of any improvement in profitability for many months now."

Woodford went on to say that there has been no real change in the pattern of excessive consumer and bank borrowing since the slowdown began. As a result any improvement in the economy could be three or four years away and any recovery might not be V-shaped, meaning there was "a lot of risk now in markets".

WHAT THEY ARE SAYING
Lex, FT: "Ahh doctor, thank you, I feel normal. Was it all a dream? An investor, perhaps a bear, who went into hibernation before Lehman Brothers collapsed might feel if he woke now that not much had changed… It would only be among public markets that this investor would note the big changes. Joblessness is soaring, even as interest rates have never been so low, nor government budget deficits so high, piling even more debt on to western economies. There he would at last see the abnormalities that made possible the normalities he first saw."David Wighton, the Times: "An increasing number of economists agree that we are heading for a W-shaped recession. This will be bad enough for the country. For Gordon Brown, if he lasts that long, it would surely be terminal. When the building facade collapses around Buster Keaton in Steamboat Bill Jr, he is miraculously left standing. If the Potemkin houses collapse around Mr Brown, he will not be so lucky."
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