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Doubt prevails in economic rescue plans
April 23, 2013
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WASHINGTON: More than three years after the end of the global recession, sluggish activity across rich and poor economies is confounding policymakers who expected more by now and raising concerns that options for kick-starting growth are increasingly limited. They face a sobering checklist:

The US economy remains shackled by a mountain of household debt and continues to whipsaw between periods of modest growth and next to none at all. 

The eurozone is mired in recession, lurching from crisis to crisis and now dealing with the latest trouble spot in Cyprus.

And even such star performers as China and Brazil have run low on gas. China in 2012 posted its weakest year of growth since 1999. Brazil’s economy slowed to a near standstill; at the same time, it faces a growing threat from inflation.

Against this backdrop, the exasperation of finance ministers and central bankers attending last week’s Group of 20 and International Monetary Fund meetings was palpable. The official communiques and sideline discussions reflected their frustration over the failure so far to deliver an effective mix of policies to finally get an upper hand on a long-lasting crisis that shows little sign of ending.

“We cannot unmistakably declare that the worst is behind us,” Brazilian Finance Minister Guido Mantega said on Friday. “There is a risk of a prolonged crisis, despite all our efforts in the G20 and other international forums.”

Central banks across the developed world have held interest rates at rock-bottom levels since 2008 while pumping more than $6 trillion into their banking systems through loans and asset-purchase operations known as quantitative easing, or “QE.” The European Central Bank has helped lower borrowing costs for the governments of Spain and Italy. Ireland, Portugal and Greece have been bailed out.

And yet a return to normalcy appears a distant dream.     

The IMF last week ratcheted back its projections for world economic growth in 2013. Rich nations face a third consecutive year of growth below 2 per cent, with US GDP seen growing just 1.9 per cent. 

The IMF projects Japan’s economy will be so weak consumers will bid prices just 0.1 per cent higher this year, while China is seen accelerating only marginally to an 8 per cent rate. Weakened demand has fueled a plunge in commodities including copper, which will hurt the economies of Latin America.

At the meetings of top finance officials in Washington, frustrations were especially evident regarding the eurozone, which is beset by a debt crisis. The IMF expects the eurozone economy to contract for a second consecutive year. 

Reuters

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