Largest economies are operating at varying speeds
WASHINGTON (AP) — The global economy is plodding ahead in fits and starts as the largest countries struggle to achieve consistent growth.
Europe is faltering again. Japan is suddenly surging. China is cooling. The U.S. is strengthening.
In the background, central banks are aiming to administer just the right amount of stimulus — not too much, not too little. Their efforts have yet to benefit many ordinary people facing job shortages and stagnant wages.
The unevenness of the global recovery was thrown into sharp relief Thursday, when the 18 European nations that use the euro reported unexpectedly weak growth for the first three months of the year. A separate report showed that Japan’s economy grew in that same quarter at the fastest pace in nearly three years.
Fresh data from the United States was mixed: Factory output declined. But fewer and fewer people are seeking unemployment benefits, a sign that solid hiring should continue.
In China, weaker trade and manufacturing have reduced growth, and leaders there foresee a further slowdown.
Most economists expect the differing outcomes across the world’s major economies to add up to a modest expansion this year.
“The global economy is strengthening, though not quite as fast as many of us would like,” said Jay Bryson, global economist at Wells Fargo Securities. Bryson expects the world economy to accelerate to 3.5 percent this year from 3 percent in 2013.
Here’s how the world’s major economies are shaping up:
EUROPE
The 18-nation eurozone economy eked out just 0.2 percent growth in the first quarter compared with the previous three months, just half the rate analysts had expected.
The sluggish figure masked significant disparities: While Germany posted a comparatively healthy 0.8 percent gain, the Dutch economy shrank 1.4 percent.
The overall bleak figures raised pressure on Mario Draghi, president of the European Central Bank, to inject more stimulus into Europe’s economy. Draghi hinted last week that the ECB could act as soon as next month to try to counter persistently low inflation and strengthen the recovery.
Economist Howard Archer of IHS Global Insight in London expects the ECB to cut its short-term interest rate to 0.15 percent from 0.25 percent. It may also impose a negative interest rate for money that banks deposit at the ECB, Archer said: The banks would essentially start paying for the privilege of parking their money at the central bank. Such a fee would likely spur the banks to lend more to households and businesses.
Other economists think the ECB could also buy bonds, a move the U.S. Federal Reserve and the Bank of England have undertaken. This would likely reduce longer-term rates and could encourage borrowing.
A key goal of the ECB is to lower the value of the euro compared with the dollar and other major currencies. That could boost exports and create more jobs.
It would also raise dangerously low inflation. Prices are now rising at just a 0.7 percent annual rate. Inflation that low can stall economic growth by leading consumers to delay purchases. Falling inflation can also increase inflation-adjusted interest rates, thereby discouraging borrowing.
JAPAN
The world’s third-largest economy expanded at a 5.9 percent annual rate in the first quarter, the fastest pace in nearly three years.
But much of that gain was fueled by a surge in spending by consumers and businesses aiming to beat a sales tax increase that took effect April 1. As that accelerated spending fades, analysts expect Japan’s economy to contract.
Since taking office in late 2012, Prime Minister Shinzo Abe has embarked on an aggressive plan to spark growth through high government spending, low interest rates and reforms to government regulation and labor policy.
So far, “Abenomics” is credited with helping Japan shed a longtime deflationary rut. But two key challenges lie ahead: The implementation of economic reforms could prove politically difficult. And the government’s debt is now double the size of its economy, a situation that will require tight budgets.
Analysts say Bank of Japan Governor Haruhiko Kuroda will face pressure to keep rates extremely low to offset those challenges.
UNITED STATES
The U.S. economy got off to a listless start this year as a harsh winter depressed growth. But in recent weeks it’s shown renewed strength. Hiring has picked up. Americans have stepped up spending. Inflation is rising toward 2 percent, the Fed’s target. Higher inflation can be a sign of economic health because it usually reflects more spending by consumers and businesses.
Employers added 288,000 jobs in April, the most in 2? years. That hiring increased the average monthly job gain this year to 214,000 from 194,000 in 2013. More jobs translates into more paychecks that support more spending.
Because of the severe winter, analysts estimate that the U.S. economy shrank in the first three months of 2014 by up to 0.9 percent. They expect growth to rebound in the current quarter to at least a 3.5 percent annual rate.
With the economy picking up, the Fed under Chair Janet Yellen has begun to unwind some of its stimulus. It’s cut its monthly bond purchases, which have been intended to lower long-term interest rates.
The Fed says it will continue to keep short-term rates low to support the economy “for a considerable time” after its bond purchases end, likely late this year. Most economists expect no rate increase before mid-2015 at the earliest.
There are signs that U.S. inflation could rise in coming months. Producer prices, which measure price changes before they reach the consumer, rose in April by the most in 19 months. A faster increase in inflation could put pressure on Yellen to raise rates earlier than she might otherwise prefer.
