Doubts in many corners cloud growth outlook

Sun Nov 11, 2012 2:57pm EST
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By Alan Wheatley, Global Economics Correspondent

LONDON (Reuters) - The global economy faces an uneasy end to a difficult year as widespread policy uncertainty that is blunting the benefit of an ultra-loose monetary stance shows no sign of lifting.

To be sure, the re-election of U.S. President Barack Obama has answered one critical question. And consumer sentiment in America is at the highest level since the onset of the great financial crisis.

But weeks of bickering lie ahead in Washington to avert the "fiscal cliff" - an automatic package of tax rises and spending cuts in January that would almost surely plunge the American economy back into recession.

"The risk of going over the cliff is higher than markets expect and the battle for the White House will pale in comparison to the all-out war that is likely coming in Congress," economists at Nomura said in a note.

As a result, companies have no clarity as to the tax rates they will be paying in future, let alone how they might be affected by regulatory and budget changes. So why should they invest the mountain of cash they are sitting on?

Businessmen in China also have good reason to wait and see which way the wind blows, even if a flurry of October data in recent days showed the economy staging a moderate rebound.

This week's scheduled handover of power from Communist party chief Hu Jintao to Xi Jinping is unlikely to fire the starting gun for the shift from investment to consumption that even Chinese officials say is necessary to sustain strong growth.

Louis Kuijs, an economist who watches China for Royal Bank of Scotland in Hong Kong, is heartened by what he sees as joined-up thinking in the writings of Li Keqiang, the presumptive successor to Premier Wen Jiabao who will be in charge of economic policy.   Continued...

U.S. President Barack Obama delivers a statement on the U.S. "Fiscal Cliff" in the East Room of the White House in Washington, November 9, 2012. REUTERS/Kevin Lamarque