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Health of global economy is worrying: Stiglitz

The euro zone is “very much” at risk of a recession and US continues to struggle with a mediocre recovery, said Nobel Prize-winning economist Joseph Stiglitz, sounding the alarm on the deteriorating global economy.

If Europe were to enter a recession it would likely be “relatively minor,” but persistent stagnation puts the single-currency bloc “on target for a lost decade,” he said.

“To me, the problem is not whether [euro zone countries] are growing a little positive or negative, the real point is they are not back to where they should be,” Stiglitz, a professor of economics at Columbia University, told CNBC on Friday.

Austerity is the wrong prescription for repairing the euro zone economy and underlies economic stagnation, he said.

“European leaders have consistently overestimated where the economy was going. Unfortunately, the leaders of Europe, in particular Germany, don’t seem to recognize that austerity is one of the reasons Europe is doing so poorly,” Stiglitz said.

That mediocre US economy

There is a lot of slack in the US economy, Stiglitz said.

“The US has been moving along in this very mediocre way. What’s remarkable is how low the growth is in spite of the fact that… we have some very strong positives,” he said, referring to the country’s huge discoveries of natural gas and thriving high-tech sector.

Furthermore, a stronger US dollar may prove to be a bane for the economy, putting the country’s exporters at a competitive disadvantage, he said.

Asked whether the world’s largest economy will be strong enough to justify an interest rate hike by mid-2015, he said “almost surely no.”

The unemployment rate will have come down, but “labor force participation is very low, [and] large numbers of Americans would like a full time job and can’t get one,” he said. The US unemployment rate fell to a six-year low of 5.9 percent in September from 6.1 percent in August.

Easy monetary policy isn’t the answer to problems in the US and European economies, he said, “What we really need is fiscal stimulus.”

China not a concern

Stiglitz is less worried about the outlook for China’s economy. While growth there is moderating, he said the likelihood of a crisis is not a high.

“[China is] sitting on multitrillion dollars of reserves,” he said. “They could use[that] to stimulate the economy if things turned out bad.”


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