World economy on rebound, but future uncertain
The brightening outlook in Europe and Asia and the improvement in U.S. credit markets and indicators reflect heavy government stimulus spending. Many analysts question whether the top economies can sustain recoveries after stimulus measures and easy-credit policies have run their course — and in the absence of significant new consumer spending, especially among Americans.
"It's not clear that these economies can continue to move forward without stimulus," said Mark Zandi, chief economist for Moody's Economy.com. "And that's in part why stock markets across the globe are nervous."
It will be difficult for other countries to pull out of recession until the U.S., still one quarter of the world economy, starts growing, he said.
After a frightening free-fall across Europe in late 2008, France and Germany, the continent's two largest economies, reported recently that they had grown slightly in the second quarter of 2009. Other major European countries reported they were still struggling, but with generally improved figures over late 2008 and earlier this year.
China, Japan, Hong Kong, Singapore and South Korea have also reported rebounds as government stimulus efforts across the globe have begun to show results.
Russia, among the hardest hit of major economies as oil prices slumped and many foreign investors fled the country, appeared to be stabilizing.
Meanwhile, in the United States, the Federal Reserve said the world's largest economy appeared to be "leveling out" and many economists see a second-half rebound.
It all adds up to an improving picture ahead of an economic summit next month in Pittsburgh of the world's top 20 industrial and developing economies.
It is the third such meeting of all the major economic players, after one convened by former President George W. Bush in November in Washington, and one held earlier this year in London. It is the first to be held recently as economies appear to be improving.
But until American consumers begin spending again, and so long as jobs are still being lost, the durability of any recovery is questionable. Major retailers reported this week that U.S. consumers are continuing to rein in spending on all but basics.
Despite slight recent improvements in many U.S. economic statistics, many consumers haven't seen a change in their lives.
So many jobs have been lost — nearly seven million since the recession began in December 2007 — that the unemployment rate will remain high long after the economy begins to rebound.
Many out-of-work Americans have lost unemployment and severance benefits and are depleting their savings. Others are saving more and spending less, still shaken from the worst economic downturn since the Great Depression.
"This is going to be the mother of all jobless recoveries," said Allen Sinai, chief global economist for Decision Economics, a consulting firm.
Japan, the world's second-largest economy, grew 0.9 percent in the second quarter, or April to June, compared with the prior quarter as export sales picked up after the country's deepest slump since World War II, the Japanese government reported earlier this week. It was the latest major economy to report upbeat second-quarter results.
Japan's return to growth — thanks to a 6.3 percent uptick in exports along with government stimulus measures — marked the end of a yearlong recession.
But the development, along with recent news that other major economies had resumed economic growth or were stabilizing, did not impress investors as global stock markets sank and then zigzagged amid fears by jittery international investors that the recoveries were not sustainable.
In the United States, the gross domestic product contracted at a 1 percent pace in the April-June quarter, after plunging 6.4 percent in the January-March quarter, the worst in 27 years, and fell by 5.4 percent in the fourth quarter of 2008.
The latest statistics suggested the recession is in its final stages, and some economists believe it may have already ended.
Still, economists are mixed on the pace of recovery. Many barriers clearly stand in the way of a quick rebound.
Noting China's fast bounce — it posted more than 6 percent growth in the first half of 2009 — Peter Morici, a business economist at the University of Maryland and a critic of Obama's economic-recovery plans, said: "China has a $400 billion stimulus package, and its economy is firing on all cylinders. President Obama has an $800 billion stimulus but prospects for the U.S. economic recovery are fragile."
Other economists are guardedly optimistic. And Lawrence Summers, the top White House economic adviser, predicts "a substantial return to normalcy" in the coming months.
While acknowledging "we have a long way to go," he notes that most forecasts for GDP growth in the second half of the year are now positive.
"It is reasonable to say that we are in a very different place than we were six months ago; that the sense of free-fall, of vertical decline, has been contained," he told a recent economic forum.
Most economists and analysts seem to agree.