Politicians and policy makers have an unusual opportunity this week to reverse some of the damage they have caused the world economy over the summer.
Recent indicators, including a report Friday that said U.S. employers created no jobs in August, show the global economy is struggling to regain momentum after stumbling badly in the first half of the year.
Many economists and executives blame governments. They say the partisan bickering and indecision shown by various leaders, lawmakers and central bankers has further weakened an economic recovery that already was hobbled by a spike in oil prices at the start of the year and Japan’s devastating tsunami and earthquake.
European leaders have failed to come up with a convincing response to their sovereign debt crisis, the U.S. political system teetered on the brink before forging a last-minute agreement to continue paying the country’s debts, and Japan just changed leaders for the sixth time in as many years.
But because of a stroke of scheduling luck, policy makers from many of the world’s most important economies find themselves in a position over the next few days to restore confidence in the faltering economic recovery, making this week a potential turning point in the battle to avoid another global recession.
Most prominent of the policy makers is U.S. President Barack Obama, who is scheduled to deliver a highly anticipated address on Thursday to a joint session of Congress, in which he is expected to present a new plan to spur job creation. There also are a slew of central bank meetings, and the week concludes with a gathering of finance ministers and central bankers from the Group of Seven nations in Marseille, France on Friday and Saturday.
Businesses, consumers and investors could use some reassurance. Sentiment measures, such as the Conference Board’s index of U.S. consumer confidence, are at levels last seen during the depths of the financial crisis. A survey of purchasing managers released last week suggested that European manufacturing contracted in August, an ominous sign because the economies of Germany and France, the two biggest euro countries, stalled in the second quarter.
The pressure on Mr. Obama was made more intense by the latest jobless figures, which showed 17,000 additions to private payrolls were offset by an equal number of layoffs in the public sector as state and local governments continued to implement austerity measures aimed at paring their heavy debt burdens.
Even though corporate profits are strong, American employers added fewer positions over the four months to August than they did in the four months ahead of the Great Recession. With the unemployment rate stuck at 9.1 per cent, there are growing worries that the world’s largest economy is headed for another downturn, if it isn’t in one already.
“The President must be bold,” Maxine Waters, a Democratic congresswoman from California, said on NBC’s Meet the Press on Sunday. Ms. Waters said she wants to see a program worth at least $1-trillion (U.S.). “We’ve got to put Americans to work,” she said. “That’s the only way to revive this economy.”
But much will depend on Mr. Obama’s ability to persuade Republicans to get behind his initiatives.
That won’t be easy. The Republican leadership that controls the House of Representatives wants to boost hiring by tearing down regulations. Mr. Obama is planning to spend money on infrastructure and short-term tax breaks tied to hiring.
“I don’t think those things are going to create jobs,” Jim DeMint, a Republican congressman from South Carolina, said Sunday on CNN.
A few hours before the President goes to Capitol Hill, Federal Reserve Chairman Ben Bernanke is set to speak to the Economics Club of Minnesota. Mr. Bernanke’s remarks could shed light on how the central bank will respond to an unemployment rate that is almost four percentage points higher the Fed’s unofficial target.
While Mr. Bernanke speaks, many of his global counterparts will be recalibrating their policies. Australia’s central bank meets on Tuesday; the central banks of Canada, Japan, Sweden and South Korea are scheduled to update policy Wednesday; and the European Central Bank and the Bank of England are set to follow on Thursday.
Most important of that group is the ECB.
While the divisive politics of bailing out Greece and others has been most troubling to investors, the euro zone’s central bankers also have come in for criticism for raising interest rates even as the yields on government debt surged and austerity measures crimped economic growth. Many analysts now expect the ECB to alter its stance this week, signalling that it’s more concerned about growth than it is inflation.