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People stroll by Lehman Brothers Holdings Inc.’s head office in Tokyo. (Katsumi Kasahara/Associated Press)
People stroll by Lehman Brothers Holdings Inc.’s head office in Tokyo. (Katsumi Kasahara/Associated Press)

The global economy’s long climb back to the new normal Add to ...

Mr. Brodeur of Signature Global Advisors is doubtful that Japan can continue to grow in 2014 and beyond without major structural reforms. And Europe could bump along at near-zero GDP growth for several years, he said.

“Europe is the new Japan,” he remarked. “They are four years into a 10-year adjustment process.”


Scars from the recession linger in the labour market, with unemployment elevated, long-term joblessness prevalent and scores of young people idle.

Still, there are encouraging signs. The jobless rates in the U.S. and Japan are falling (with Japan’s a scant 3.8 per cent) and Australia, Canada, New Zealand and South Korea have replaced a good part or all of the jobs lost in the downturn.

Across the OECD, more people are working than last year, although employment levels are still lower than before the financial crisis.

The wounds are stark in Europe. The region’s jobless rate remains at 12.1 per cent, a record high, with more than one in four people in Spain and Greece out of work. Even there though, the job losses appear to have plateaued.

It will take years for the region’s labour market to repair. Nonetheless, “the welcome thing is that unemployment seems to have stopped getting worse,” said the OECD’s Mr. Elmeskov. “These days, you become grateful for a little.”

Canada’s labour market has been healthier than many others, although the jobless rate has stayed at 7 per cent or higher since December, 2008. Young people are still struggling in the labour market, while older workers are faring better.

Joblessness and what to do about it remains a pressing political issue. The OECD this week urged governments to establish training policies and introduce targeted measures for young jobless people, while leaders in the G20 this week said economic growth and job creation are their top priority. “We are united in the resolve to achieve better-quality and more productive jobs,” they said. They too, singled out the young as a particular focus.

Global unemployment is expected to near 208 million by 2015, up from 200 million today, according to the International Labour Organization, which is particularly concerned about the dearth of high-paying, permanent jobs.


Calling the beginning of the end of easy money “tapering” makes it all sound so simple.

It isn’t. The U.S. Federal Reserve is headed into uncharted territory as it prepares to start unwinding five years of unprecedented monetary easing in the coming months.

It will be slow, complicated and sometimes wrenching business.

Higher interest rates could suck the air out of everything from home purchases and car buying to business investment – not just in the U.S., but around the world. Stock markets will take a hit as bonds and other fixed-income investments become more attractive.

The tremors of the U.S. tapering will be felt throughout the global economy.

Consider the sheer scale of what must be done. We are talking about trillions of dollars. The Fed amassed a portfolio of more than $2-trillion (U.S.) in U.S. government bonds and another $1.5-trillion in mortgage-backed securities and other assets as it scrambled to save the U.S. banking system and revive the stalled economy. The total value of its portfolio is expected to top out next year at nearly $3.8-trillion.

Step one is to wind down those purchases, now running at $85-billion a month. That process could last most of next year. The Fed has said it won’t stop the purchases completely until the jobless rate falls to 7 per cent, down from 7.3 per cent now.

Once the jobless rate sinks to 6.5 per cent – perhaps in mid-2015 – the Fed could begin to raise its benchmark rate, stuck near zero since late 2008, to a more normal level. But what’s normal, and how far and fast will the Fed go?

Société Générale’s chief U.S. economist Aneta Markowska figures the Fed may have to hike its key rate by more than five percentage points in just two years, starting some time in 2015. That could mean a Fed rate of nearly 6 per cent by 2017.

The final challenge for the Fed will be to then shrink its swollen portfolio, a process that analysts say could take more than five years. Fed chairman Ben Bernanke is expected to reveal details of how that might work Sept. 18.

In the end, many of these decisions won’t be Mr. Bernanke’s to make. He is expected to leave in January, and his successor – likely Fed vice-chair Janet Yellen or former U.S. Treasury secretary Lawrence Summers – will be in the driver’s seat.

An emerging challenge for central banks in Europe and elsewhere, where growth is not as strong, is to keep its own interest rates from getting swept up in the up-draft of U.S. tapering.

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