Is the economic recovery sustainable?

Is the economic recovery sustainable?

Washington: Turnabouts in European and Asian economies, along with recent gains in the US, are raising hopes that the worldwide recession is drawing to a close. That’s not to say the coast is clear.

The brightening outlook in Europe and Asia and the improvement in the US credit markets and indicators reflect heavy government stimulus spending. Many analysts question whether the top economies can sustain recoveries after stimulus measures and easy credit policies have run their course and in the absence of significant new consumer spending, especially among Americans.

“It’s not clear that these economies can continue to move forward without stimulus," said Mark Zandi, chief economist for Moody’s “And that’s in part why stock markets across the globe are nervous."

It will be difficult for other countries to pull out of recession until the US, still one quarter of the world economy, starts growing, he said.

After a frightening free-fall across Europe in late 2008, France and Germany, the continent’s two largest economies, reported recently that they had grown slightly in the second quarter of 2009. Other major European countries reported they were still struggling, but with generally improved figures over late 2008 and earlier this year.

China, Japan, Hong Kong, Singapore and South Korea have also reported rebounds as government stimulus efforts across the globe have begun to show results.

Russia, among the hardest hit of major economies as oil prices slumped and many foreign investors fled the country, appeared to be stabilizing.

Meanwhile, in the US, the Federal Reserve said the world’s largest economy appeared to be “levelling out" and many economists see a second-half rebound.

It all adds up to an improving picture ahead of an economic summit next month in Pittsburgh of the world’s top 20 industrial and developing economies.

It is the third such meeting of all the major economic players, after one convened by former president George W. Bush in November in Washington, and one held earlier this year in London. It is the first to be held recently as economies appear to be improving.

But until American consumers begin spending again, and so long as jobs are still being lost, the durability of any recovery is questionable. Major retailers reported this week that US consumers are continuing to rein in spending on all but basics.

Despite slight improvements in many US economic statistics recently, many consumers have not seen a change in their lives. So many jobs have been lost—nearly seven million since the recession began in December 2007—that the unemployment rate will remain high long after the economy begins to rebound.

“This is going to be the mother of all jobless recoveries," said Allen Sinai, chief global economist for Decision Economics, a consulting firm.