Australia's early move to raise interest rates suggests that some countries are bouncing back more quickly from the Great Recession while others - most notably the United States - will likely continue priming their economies with easy money well into next year.
The world tumbled into recession roughly in sync, but the recovery is proving to be a lot more ragged.
It's a story of two recoveries: very weak in the United States and parts of Europe, but much stronger elsewhere. The International Monetary Fund is forecasting growth next year in the United States of just 1.5 per cent, and a meagre 0.3 per cent in Europe. Growth in Asia, on the other hand, will average 7.3 per cent.
"The global downturn was mostly ubiquitous, but the upswing won't be," said independent Boston-based economist Rebecca Wilder.
The travails of the U.S. economy helped push the greenback to its lowest level versus the euro in nearly two weeks yesterday, sliding 0.5 per cent to $1.4714 per euro.
The economies of many emerging countries, including China, India and Brazil, are proving remarkably resilient in the face of a global slump, which is good news for companies that export goods to those markets.
Goldman Sachs interest rate strategist Francesco Garzarelli said countries are generally plotting two exit strategies from the easy money of the past couple of years: sooner, but slower; or later and faster.
Australia's rate move could be a harbinger of early rate hikes in countries that experienced milder recessions, such as Canada, Britain, Norway, India and China, Mr. Garzarelli said.
The Bank of Canada's resolve to keep rates at record-low levels until next June may be weakening. Governor Mark Carney said last week that the rates pledge is "an expectation, not a promise."
The United States, on the other hand, remains in the grips of still-rising unemployment, weak demand for credit and the virtual absence of inflation pressures, Mr. Garzarelli said. Those weak conditions would likely prevail in the U.S. "through the whole of next year," he said.
The U.S. economy shed another 260,000 jobs in September, helping to push the unemployment rate to 9.8 per cent.
"Most of the country is experiencing enormous economic pain, even if the economy is now in recovery," said Dean Baker, co-director of the Washington-based Center for Economic Policy Research.
"For the vast majority of people in the country, who derive the vast majority of their income from working, the economy looks really awful," Mr. Baker said.
And in that environment, the U.S. Federal Reserve can comfortably keep its benchmark federal funds rate near zero through mid-2010, and possibly longer.
"The Great Recession is over, but the current economic recovery will be a difficult slog through much of next year," said Mark Zandi, chief economist at Moody's Economy.com.
On Monday, New York Federal Reserve president William Dudley warned about intense disinflationary pressures in the U.S. economy and dismissed concerns that the central bank's expanded balance sheet would lead to unwanted inflation down the road.
He also played down prospects for a V-shaped recovery. He warned in particular about problems in commercial real estate, weakened household finances, and the prospect that consumer spending could peter out when the federal stimulus program runs out.
KEY INTEREST RATES
Australia's central bank raised its key cash rate to 3.25% yesterday, setting the stage for other countries to follow.
January, 2008 - 6.75%
Current - 3.25%
January, 2008 - 4.25%
Current - 0.25%
January, 2008 - 4.25%
Current - 0.25%
January, 2008 - 5.5%
Current - 0.5%
January, 2008 - 4%
Current - 1%
January, 2008 - 0.5%
Current - 0.1%
January, 2008 - 7.47%
Current - 5.31%
THE GLOBE AND MAIL / SOURCE: BLOOMBERG