US, UK economies to recover by 2010 H2 -economists

JACKSON HOLE, Wyo., Aug 21 (Reuters) - Damage from financial crises is generally long-lasting and deep, and the U.S. and UK economies are not likely to regain their pre-crisis levels of activity until the second half of 2010, three prominent economists said on Friday.

In a study of how long it takes nations to recover from banking crises, the economists from the Bank for International Settlements said that a third of the 40 crises they studied led to contractions that lasted for three years or more and a quarter of the crises resulted in cumulative losses in economic output of more than 25 percent of pre-crisis gross domestic product.

'Financial crises are more frequent than most people think and they lead to losses that are larger than one would hope,' Stephen Cecchetti, Christian Upper and Marion Kohler wrote in a paper presented at the Kansas City Federal Reserve Bank's annual conference here.

Cecchetti heads the BIS' Monetary and Economic Department, while Upper heads its Financial Markets unit. Kohler is a senior economist at the BIS, which serves as a bank to central banks around the globe.

The economists wrote that Spain and the Netherlands will recoup ground lost during their recessions even later than the United States and Britain. Japan and Ireland are expected to rebound earlier.

Policy-makers are meeting here two years after the beginning of a financial crash that threw economies around the world into recession. They will be talking about ways in which central banks can prevent meltdowns and how to spool back emergency measures put in place to battle the crisis without causing disruptions.

While crises vary widely, making it hard to generalize, certain features affect their impact, the paper's authors said.

When a banking crisis is accompanied by a currency collapse it lasts longer and the dent in an economy is deeper. If the crisis comes at a time when economic growth is already weak, it also tends to be more severe, the authors said.

Ironically, meltdowns that are accompanied by a sovereign debt default are less painful. That is because defaults free up domestic resources since a significant amount of the debt is held by foreigners.

(Reporting by Mark Felsenthal; Editing by Leslie Adler) Keywords: USA FED/RECOVERY ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.