Global Economy: Faith in revival put to test

Sun Sep 29, 2013 8:42pm EDT
 
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LONDON (Reuters) - Yet another budget showdown in Washington and yet another government crisis in Italy herald more turbulence for a global economy growing well below trend.

On top of these recurrent pitfalls, banks and households in Europe are still shedding debt, several big emerging economies are slowing and markets are struggling to decode the Federal Reserve's policy signals.

No wonder that words like 'modest' and 'moderate' pepper many of the latest growth outlooks. Yet there is a guarded confidence at some banks that a recovery, not powerful but worthy of the name, might finally be within reach.

Credit Suisse, for instance, is penciling in 3.8 percent global growth for 2014, up from 3.0 percent this year and surpassing what it sees as the trend rate of 3.5 percent.

A lessening of fiscal headwinds will be important in allowing the hoped-for pickup in the United States, said John Calverley, head of macroeconomic research with Standard Chartered Bank in Toronto.

"So you should start to see growth moving up well into the 2.5, 3.0 percent range, maybe more, over the next couple of years," he said. The U.S. economy has expanded at an average pace of less than 2 percent in the last four quarters.

NO BLINKING IN WASHINGTON YET

But that view could be sorely tested in coming days.

In Washington, a government shutdown from Tuesday drew nearer after the Republican-controlled House of Representatives voted to delay Democratic President Barack Obama's landmark healthcare law for a year as part of an emergency spending bill.   Continued...

 
A container ship is seen at the Yangshan Deep Water Port, part of the newly announced Shanghai Free Trade Zone, south of Shanghai September 26, 2013. REUTERS/Carlos Barria