In Europe, manufacturing is picking up, the jobless rate is holding steady, and retail sales probably flipped back into positive territory in March after a February slump.
What more could the head of the US Federal Reserve, Ben Bernanke, and the head of the European Central Bank, Jean-Claude Trichet, want to convince them that it is safe to start lifting benchmark interest rates from record lows?
For starters, resolving Greece’s debt troubles and assuring that fiscal strains won’t be allowed to destabilize larger European economies such as Spain would help to neutralize the latest source of global financial unrest.
Some reassurance may come this week as European leaders and the International Monetary Fund race to finalize a Greek aid package expected to be worth as much as US$160 billion (RM509 billion).
That probably won’t be enough to embolden Trichet when the ECB holds its policy-setting meeting on Thursday. Economists polled by Reuters see virtually no chance that the ECB will hike its benchmark interest rate from the current 1 percent, where its stood since May 2009.
Of more interest is how Trichet responds to questions about the ECB’s role in stabilizing Greece. ECB Executive Board member Lorenzo Bini Smaghi said talk of the central bank providing more liquidity or buying government bonds was “just speculation.”
Even if Greece’s debt troubles are cleaned up quickly, most other advanced economies -- particularly in Europe — are shouldering heavy fiscal burdens as well. Restoring debt to sustainable levels will likely slow growth, giving central bankers another reason for caution.
“Heavy-duty fiscal medicine is rapidly coming Europe’s way, and well beyond Greece. This will keep growth in Europe in the slowest lane, with implications far and wide,” said Douglas Porter, an economist with BMO Capital Markets in Toronto.
“The lesson from the Asian crisis in the late 1990s and the financial crisis a decade later is that real trauma in seemingly minor markets can quickly cascade around the globe.”
Payrolls perking up
For the United States, which has its own fiscal cleanup project looming, Greece’s impact has been limited to some stock market volatility, a jump in the value of the dollar against the euro, and a decline in Treasury debt yields as investors looked for safer havens.
Greece’s repercussions, so far, have amounted to nothing more than a “gentle cross breeze for the near-term outlook here,” said Citigroup economist Robert DiClemente.
Still, some economists suspect Bernanke’s reluctance to significantly upgrade the economic outlook at the Fed’s policy-setting meeting last week reflected some uncertainty over Europe.
The Fed also wants to see more evidence that companies are hiring, and it will probably get some in the April employment report the government will release on Friday. Economists polled by Reuters think it will show a gain approaching 200,000, which would be the largest monthly rise since March 2007.
Still, neither the Fed nor the Obama administration thinks the economy will come charging back to pre-recession levels any time soon, even though it has recorded three straight quarters of growth. A monthly gain of 200,000 jobs would put only a small dent in the 8 million jobs lost since the start of the US recession in December 2007.
“In the work of preventing Armageddon, we’ve made a lot of progress on that agenda,” White House economic adviser Lawrence Summers said on Friday. “But the work of assuring strong and robust recovery is not yet complete.”
My Take:
Looks good. The world is coming back on its feet,so it seems.
