Taper tantrum conceals brightening growth picture

Sun Jun 23, 2013 2:02pm EDT
 
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By Alan Wheatley, Global Economic Correspondent

LONDON (Reuters) - Markets dismayed by the Federal Reserve's stimulus withdrawal timetable might be in no mood for good news, but evidence is mounting that other rich economies are joining the United States on the road to recovery.

Improving growth prospects, of course, are the main reason why the Fed expects to phase out its bond purchases, now running at $85 billion a month, by the middle of 2014. The U.S. central bank reckons output will expand by 3.25 percent next year.

The euro zone, too, seems to be stabilizing after 18 months of recession as fiscal headwinds blow a little less fiercely, while economists are upgrading their growth forecasts for Britain as household incomes improve.

Japan has already discovered a new lease on life thanks to aggressive monetary and fiscal stimulus.

"There are pretty clear signs of an improvement in developed-world final domestic demand," said Daniel McCormack, a strategist with Macquarie in London.

He said Europe was clearly over the worst, with even heavily indebted countries on the rim of the euro zone, such as Spain, finding a floor.

The modestly brighter outlook will be reflected in euro zone business and consumer sentiment figures on Thursday, according to economists polled by Reuters. Germany's IFO business climate index, due on Monday, is also expected to have edged higher.

FED WIPES AWAY THE FROTH   Continued...