Prodi Says Economic Crisis Effects Undigested, Sees Slow European Growth

By Tom Kohn on Bloomberg – Sep 14, 2010 6:00 PM GMT+0200

Europe faces “slow, slow,” economic growth as the effects of the credit crunch and sovereign debt crisis filter through, former European Commission President Romano Prodi said.

“The consequences of the crisis have not yet been digested,” Prodi said in an interview in Hong Kong yesterday. “It will take a long time.”

Euro area growth will be 1 percent this year and 1.3 percent next year, International Monetary Fund projections show. World output is pegged at 4.6 percent for 2010, with China expanding 10.5 percent. The 2008 global crisis was followed by sovereign debt woes that led to a Greek bailout in May.

Euro-area ministers agreed to provide 110 billion euros ($141 billion) to Greece as the country struggled to control a deficit that reached 13.6 percent of gross domestic product last year, more than four times the European Union limit. When that failed to stop the euro’s slide, the EU and IMF offered a financial lifeline of almost $1 trillion to member states.

“I don’t think there’ll be a double dip, I don’t think there’ll be any worsening of the situation,” said Prodi, who’s now chair professor of Sino-European dialog at the China Europe International Business School in Shanghai. “But I do think that the way out is still long.”

Growth is strong in China, and domestic consumption is picking up, as shown by the latest month’s import figures, Prodi said. Trade data released Sept. 10 signaled strength in Chinese demand, with imports in August jumping 35 percent from a year earlier, more than economists forecast.

Combined with wage increases in the south, it shows the policies of increasing internal demand have started, Prodi said.

The former prime minister of Italy declined to comment on the possible timing of an election in his home country.