Analysis: Growth stumble, jobs funk beg for new policy tilt

Wed Mar 6, 2013 8:06am EST
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By Mike Dolan

LONDON (Reuters) - As western economies hit another pothole in their stuttering post-crisis recoveries, pressure to step up economic policy intervention to tackle entrenched unemployment may be building.

Global business surveys showing a second consecutive retreat in private sector growth last month, albeit from nine-month highs in December, have refired investor doubts about whether policy settings are adequate to protect recovery through 2013.

Few have lost sight of the fact that the country with the best growth performance so far, the United States, has some of the loosest policy settings. And the Federal Reserve makes no bones about its focus on joblessness.

"The large shortfall of employment relative to its maximum level has imposed huge burdens on all too many Americans and represents a substantial social cost," Fed vice-chair Janet Yellen said Monday, warning that "insufficiently forceful" action carried big risks.

Major central banks are flooring interest rates or printing money or both and are assumed in many areas to be the default safety net, and speculation that one or all of the European, British and Japan central banks will ease policy further at meetings this week continues to bubble.

But gnawing doubts about central banks' ability to do all the heavy lifting on their own are turning the focus back onto fiscal policy.

As a result, the highly-politicized debate over how to cut spending to rein in bloated government debts without snuffing out the economic growth needed ultimately to reduce such borrowing has raged again over a sobering month.

A vote against austerity in Italy, Britain's loss of its prized triple-A credit rating, and automatic budget cuts triggered in the United States on Friday have all amplified the risks of slashing budgets too deep and too fast while economies are weak or even contracting.   Continued...

Federal Reserve Vice Chair Janet Yellen addresses the 29th National Association for Business Economics Policy Conference in Washington March 4, 2013. REUTERS/Gary Cameron