WASHINGTON: Five years after a global financial crisis erupted, the world’s biggest economies still need to be propped up.
They’re growing and hiring a little faster and creating more jobs, but only with extraordinary aid from central banks or government spending. And economists say major countries may need help for years more.
From the United States to Europe to Japan, central banks are pumping cash into economies and keeping loan rates near record lows. Even fast-growing China has rebounded from an uncharacteristic slump with the help of government money that’s poured into projects and made loans easily available from state-owned banks.
For now, thanks in part to the intervention, the world economy is improving. The International Monetary Fund expects global growth to rise to 3.6 percent in 2014 from 2.9 percent this year.
The improvement “does not mean that a sustainable recovery is on firm footing,” Angel Gurria, secretary- general of the Organization for Economic Cooperation and Development, warned last month. He said major economies will need stimulus from “extraordinary monetary policies” to sustain momentum into 2014. Many economists think stimulus will be needed even longer.
Yet these policies carry their own risks: Critics, including some of the Fed’s own policymakers, note that the cash the central banks are pumping into the global financial system flows into stocks, bonds and commodities like oil. Their prices can escalate to unsustainable levels and raise the risks of a market crash.
Here’s a look at how the world’s major economies are faring:
The U.S. economy grew at an unexpectedly solid 2.8 percent annual pace from July through September, though consumers and businesses slowed their spending. And U.S. employers added a strong 204,000 jobs in October.
The Fed has been debating whether hiring is healthy enough to justify slowing its monthly bond purchases. Most economists think the Fed won’t reduce its bond buying before early next year.
Nariman Behravesh, chief economist at IHS Global Insight, thinks the U.S. economy will be strong enough to manage without any help from Fed bond purchases by the end of 2014.
But weaning the U.S. economy off Fed support, he says, is “tricky. ... If you do it too slowly, you could ignite inflation. If you do it too quickly, you run the risk of killing the recovery.”
After enduring two recessions since 2009, the 17 countries that use the euro currency are expected to eke out their second straight quarter of growth from July through September. But many economists say the eurozone’s growth might not meet even the feeble 0.3 percent quarterly pace achieved from April through June.
The European Central Bank surprised investors last week by cutting its benchmark refinancing rate to a record 0.25 percent. It acted after economic reports exposed the weakness of the recovery. Inflation last month was a scant 0.7 percent. That raised the risk of deflation — a prolonged drop in wages, prices and the value of assets.
Japan’s economic recovery has gained momentum since Prime Minister Shinzo Abe took office in late 2012. The government and central bank have injected money into the economy through stimulus spending and rate cutting. The economy grew at a robust 3.8 percent annual rate from April through June.
But economists worry about whether the recovery can be sustained and whether Japan can grow enough to make up in tax revenue what it’s spending on stimulus.
China’s economy grew at a two-decade low of 7.5 percent in the three months that ended in June compared with a year earlier. That’s still a vigorous pace compared with many developed economies. But for China, it marked a slowdown, and Beijing launched a mini-stimulus program, spending on railway construction and other public works.
Growth edged up to 7.8 percent from July through September from a year earlier.
Yet some economists doubt the gains in China will last.
“I can’t see the rebound lasting for very much longer, because it has been driven by government projects,” says Mark Williams of Capital Economics.