The Federal Reserve’s vice-chairman on Monday
warned that future US and global growth may remain subdued.
Stanley Fischer pointed to a US labour force
participation rate that at below 63% is at its lowest since 1978 when many women
were joining the workforce and a weak US
housing recovery as explanations for disappointing global growth, saying this
could be a long-term phenomenon.
The Fed vice chairman said in
a speech in Stockholm at the "The Great Recession--Moving Ahead" conference,
which was sponsored by the Swedish finance ministry, that although the weak
recovery might simply be fallout from the financial crisis and the recession,
“it is also possible that the underperformance reflects a more structural,
longer-term shift in the global economy.”
He said: "With few exceptions, growth in the
advanced economies has underperformed expectations of growth as economies exited
from recession. Year after year we have had to explain from mid-year on why the
global growth rate has been lower than predicted as little as two quarters back.
Indeed, research done by my colleagues at the Federal Reserve comparing previous
cases of severe recessions suggests that, even conditional on the depth and
duration of the Great Recession and its association with a banking and financial
crisis, the recoveries in the advanced economies have been well below average.
In the emerging market economies, the initial
recovery was more in line with historical experience, but recently the pace of
growth has been disappointing in those economies as well. This slowing is broad
based--with performance in Emerging Asia, importantly China, stepping down
sharply from the post-crisis surge, to rates significantly below the average
pace in the decade before the crisis. A similar step-down has been seen recently
for other regions including Latin America."
Fischer said it was difficult to determine how
much of the weakness was because of cyclical factors and how much represented a
more fundamental, structural change in advanced economies.
However he warned of three pronounced headwinds that have held back growth in
the United States: a still anemic housing market, cuts in federal government
spending and weaker global growth that cut demand for exports.
Both the Eurozone and Japan's economy remain