August 11, 2009 / 7:49 PM / 9 years ago

U.S. may face second recession: Harvard's Rogoff

BOSTON (Reuters) - The United States faces a prolonged period of sluggish growth and perhaps another recession in the next five years, Harvard University economist Kenneth Rogoff said on Tuesday.

The U.S. recession that began in December 2007 is close to an end, and economic growth will hover near a sluggish 2 percent for the next five to seven years, he said.

“We’re going to be Japan-light,” he said in an interview, referring to Japan’s years of sub-par growth after its financial crisis of the 1990s. “We won’t have a lost decade, but we will face some of the same challenges.”

Rogoff, a former International Monetary Fund chief economist and an expert on banking crises, said the United States faces a 50-50 chance of a second recession in the next five years.

Moreover, the commercial real estate market crisis remains a potential drag on growth.

“Commercial real estate is a tsunami coming that’s going to wipe out a lot of the small banks,” he said. “It’s unclear if any big players will be stressed out by it, which will depend on how the economy is doing.”

Rogoff also said the United States will need to raise taxes soon as debt levels swell and interest rates rise. He expects to see a national sales tax in three years.

“People just don’t understand how much taxes are going to have to go up on the current trajectory we’re on,” he said. “People are still on the high that the government can back everything and not seeing what the costs are.”

Writing by Emily Kaiser; Editing by Padraic Cassidy

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