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WASHINGTON (Reuters) - Thanks to roughly $5 trillion in special lending and spending programs, world finance leaders have managed to revive economic growth.
In 2010, the bills may start coming due.
The United States, the euro zone, Britain and Japan are all expected to report economic growth for the final three months of 2009, according to a recent Reuters poll of more than 150 economists. Official figures aren't due for several more weeks, but recent reports on factory activity and world trade point to a stronger fourth quarter.
While the pace of growth may slacken a bit in 2010, most forecasters think it will stay positive in advanced economies. But unemployment is likely to remain uncomfortably high, which suggests already strained government finances will worsen.
That will leave countries with limited resources to step in should the economy falter again. And the rising debt burden is beginning to raise alarms with some economists and investors.
The International Monetary Fund thinks debt as a percentage of gross domestic product will rise in all of the Group of Seven wealthiest countries in 2010, and probably remain elevated at least through 2014.
"The foundation of the global economy remains unstable even if the cracks have been smoothed over and we are all happy to forget what lies beneath the heavy layer of the public sector's liquidity insurance," said Lena Komileva, an economist with Tullett Prebon in London.
Komileva argues that the global economy is in the midst of a "mega cycle of multi-year economic trends" that won't quickly be resolved, even after growth is firmly established.
In addition to high government debt, many consumers are carrying large debt burdens, particularly in the United States and Britain. There is also the matter of elevated unemployment in most of the advanced economies, and credit is still not flowing normally between banks and borrowers.
Those factors, along with a tame inflation outlook, will probably give the major central banks ample reason to keep benchmark interest rates unusually low, at least through the first half of 2010 and perhaps well into 2011.
Longer-term interest rates, however, may rise anyway should investors grow more anxious about how countries will repay their debt when sluggish economic growth is curtailing tax revenues and aging populations are draining resources.
Higher long-term rates would make it costlier for businesses to fund investment or expansion, and for households to borrow money to buy cars and homes, putting a drag on the economic recovery.
Bob Eisenbeis, a former research director for the Federal Reserve Bank of Atlanta who is now chief monetary economist at Vineland, New Jersey-based Cumberland Advisors, said 2010 may be "uneventful" as far as the U.S. Federal Reserve is concerned.
Eisenbeis said the U.S. central bank is likely to keep its benchmark interest rate near zero percent through 2010, in part because of stubbornly high unemployment.
Even if the U.S. economy generated growth in the range of 3 percent to 4 percent -- which would be more robust than most economists predict -- it would take three to four years to recoup the jobs that have been lost in this recession.
U.S. coffers are likely to suffer a double blow in the coming years. Starting in 2011, the first of the Baby Boomer generation -- born after World War Two -- will begin drawing retirement benefits, while millions of younger people who pay into those plans are still looking for work.
That is one reason why the IMF thinks U.S. debt as a percentage of GDP will creep higher at least through 2014.
The United States has maintained its top-notch credit ratings, which helps it to borrow at low interest rates, but ratings agencies have made it clear they want to see the United States back on a sustainable debt path soon. They have also begun raising alarms about the debt sustainability of other advanced countries, including Japan and Britain.
Last week, Moody's lowered its rating on Greece, marking the third downgrade of the country by a major credit rating agency this month. Ireland's sovereign debt rating was downgraded in November.
Charles Dallara, managing director of private sector banking group the Institute of International Finance, said U.S. Treasury market investors ought to pay close attention.
"Markets today are focused on Greece and Ireland. Tomorrow they may focus on the United States and other important countries," he said.
Editing by Leslie Adler