The economic recovery may be sharper than many forecasters, including the International Monetary Fund, have predicted, precisely because the recession was so deep, Michael Mussa, senior fellow, Peterson Institute for International Economics, told CNBC.com.
"My observation is that when you have a deep recession you usually get a steep recovery," Mussa, who was also chief economist and director of the Department of Research at the IMF, said in a telephone interview. "What I'm forecasting is not a recovery that exceeds what we've seen in the past coming out of recessions."
World economic output will fall a little more than 1 percent this year and is likely to rise by slightly more than 4 percent next year, he said. Advanced economies should fall by around 3.3 percent in 2009 and rise by 3.3 percent in 2010.
The fall in US output may reach about 2.4 percent this year, but next year the world's largest economy is likely to post a strong rebound of around 4 percent, Mussa said.
The IMF prediction, updated in July, puts the fall in world economic output at 1.4 percent this year and it expects a meager recovery of 2.5 percent next year. Advanced economies are predicted to decline by 3.8 percent in 2009 and rebound by a modest 0.6 percent next year.
According to the IMF forecast, the US economy will fall by 2.6 percent this year and rise by only 0.8 percent in 2010.
But Mussa said his forecast, which assumes that consumers will want to increase their savings rate, takes into account historical trends.
Investment Picking Up
Over six quarters, from the second half of this year to the end of next year, US gross domestic product is likely to increase by 7 percent, while historically the average growth in GDP in the 6 quarters after a recession was 10 percent, Mussa said.
"I'm expecting business investment in equipment and software to pick up," he said.