The World Economy: Can it be…the recovery?

Written on March 16, 2012 by Ángeles Figueroa-Alcorta in News

The outlook for the world economy is better than it was, but there are still big risks out there

There are tantalizing signs of good news in the world economy. In America firms are hiring more and consumers are spending more. The euro zone’s recession is proving milder than expected. Greece’s debt restructuring, the first sovereign default in a developed economy for 60 years, has passed off without a hitch. Cheered by the signs of recovery, and relieved that disaster has been avoided (particularly in Europe, which towards the end of last year seemed on the brink of a calamity of Lehman-like magnitude), financial markets have been climbing steadily higher. The MSCI global share index is up by almost 9% since the beginning of the year and by 20% since its lows last October.

After so much gloom, it is hardly surprising that the world’s animal spirits are beginning to leap again. Yet there are good reasons to be wary of all the optimism. Global growth, dragged down by less ebullient emerging economies as well as recession in Europe, is still likely to be slower this year than it was in 2011.

And there are still big risks out there. Too often since the 2008 financial crisis investors’ hopes for strong and lasting growth have been dashed—whether by bad luck (soaring oil prices), bad policy (too much budget austerity too fast) or the painful realisation that recoveries after asset busts are generally weak and fragile. If tensions with Iran over its nuclear programme spike, for instance, an oil-supply shock could once more cause havoc. Much could yet go wrong.

Less gloom, but no boom

Conveniently enough for a president who is seeking re-election in November, the clearest signs of recovery are in America. The good news is both cyclical, as stronger employment fuels income and spending, and structural, as evidence mounts that the drags from the housing bust are waning (see article). Exclude the temporary work involved in carrying out America’s 2010 census, and more jobs have been created in the three months since November than in any three-month period since 2006. Unemployment and underemployment are both falling. House prices continue to drift lower, but both construction and home sales have started to rise. Consumer credit is growing and the fiscal squeeze has loosened, thanks to an easing of state-level budgets and Congress’s extension of temporary tax cuts until the end of the year. Read more…

As published in www.economist.com on March 17, 2012 (print edition).



On 25 Mar 2013 at 8:14 am April 14, 2013 - 12:25 pm

On 25 Mar 2013 at 8:14 am…

The World Economy: Can it be…the recovery? | International Relations Blog…

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