GETTING out of this global downturn is going to be 'a hard slog' and not a quick recovery, cautioned Finance Minister Tharman Shanmugaratnam on Tuesday.

Mr Tharman said while the worst may be over for the global economy, a firm recovery has not emerged and any pick-up will be slower than in previous recessions.

Investors should also be prepared for a slower-growth world and expect unemployment to stay high for an extended period, he told old investors, fund managers and corporate executives at the Nomura Asia Equity forum.

'The weight of evidence suggests this is going to be a hard slog. The recovery over the next two years is going to be slower than previous recoveries and we cannot rule out setbacks from time to time,' said the minister.

He noted that US consumers, after two decades of unsustainably high spending, are saving more, so even though China's consumption is rising, it still cannot make up for the shortfall.

'Chinese consumption growth is not ready to compensate for the US consumption growth. Even if they try their hardest, it's about one sixth the size of US private consumption,' he said.

Mr Tharman's 40-minute address touched on a broad range of issues, from microeconomic reforms, long-term growth to the limits of fiscal and monetary policy measures - the key tools governments typically use to influence demand.

With debt-burdened US consumers on the ropes, he said there will be a significant contraction of real consumption, which will impact on Asia's growth.

'Lower (growth) but not unacceptable given the need to unwind the excesses we've seen in the global economy over the last five years,' Mr Tharman said.

He added that Gross Domestic Product (GDP) expansion in Asia will likely fall to an average of 6.5 per cent over the next few years, from 9 per cent during the 2002 to 2007 period.

The International Monetary Fund (IMF) forecasts that developing economies will probably expand 1.6 per cent as a group this year and 4 per cent in 2010.

Developed nations will contract 3.8 per cent this year and have zero growth next year, the IMF forecast in its April World Economic Outlook report.

Mr Tharman said there are limits to what can be achieved by countries through fiscal and monetary policies. Fiscal policy has already resulted in a substantial build-up of debt around the world while most of Asia is on a US Federal Reserve-inspired monetary policy, he said.

'Interest rates already low, (they) can't go much lower. And in Asia, (they) can't go much lower without risking a loss of confidence in your currencies,' Mr Tharman said.

He urged regional governments to work on microeconomic and social reforms to increase long-term consumption growth, such as developing social security and health insurance policies that would free Asian consumers to spend more and save less.

China is 'very serious' about these sort of reforms, he noted, pointing out that the country is planning to have a medical clinic in every village by 2012 and national health insurance by 2020.

'The macro story worked well for a year but is both unsustainable and undesirable if continued year after year,' he said. 'The real reforms in social security... that story is real, but it takes time.'