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World of hurt

The world economy is teetering. In the United States, political paralysis has left policymakers with few tools to fight a slowdown. Europe is wrestling with a debt crisis. Economic growth in powerhouse China appears to be slowing. Christine Lagarde, head of the International Monetary Fund, warned this week that the world was entering a "dangerous phase." Robert Zoellick, president of the World Bank, said he loses confidence daily that the global economy can avoid a new recession. Pick a spot on the globe and you'll find economic trouble. Here's a region-by-region guide to what worries the experts. — Associated Press

10,771

Dow close on Friday, up 38 for the day but down 6.4 percent for the week, the biggest drop since Oct. 10, 2008, at the height of the financial crisis.

$79.85

Week's closing price of a barrel of oil. It fell 66 cents Friday after a six percent drop a day earlier. The price is still almost $5 a barrel more than a year ago.

What now?

Market jitters: U.S. markets sank this week even though the Federal Reserve offered a bigger dose of economic stimulus than investors had expected: The Fed plans to reshuffle $400 billion of its investments in hopes of pushing down interest rates on mortgages and other long-term loans. But economists say the Fed's effort — dubbed Operation Twist — probably won't make much difference. Rates on mortgages and other loans are already the lowest in decades, but businesses aren't seeing enough sales to justify hiring. The IMF estimates growth in the United States will be just 1.5 percent.

Deficit debate: Congressional Republicans are focused on cutting government deficits and are resisting President Barack Obama's $447 billion plan to generate jobs with payroll-tax cuts and more spending for roads, bridges, schools and other infrastructure projects. Economist Eswar Prasad of Cornell University says the U.S. government should tolerate higher deficits now to spur economic growth. "We are seeing the exact opposite," he says.

Battling a debt crisis

Bailout blues: Greece, Ireland and Portugal have already required bailouts from the European Union and the IMF. Italy and Spain, which are much bigger economies, might need them, too. A $149 billion bailout has kept Greece afloat for the past year. It's due for another $148 billion rescue negotiated over the summer. But creditors are balking at delivering the second package, European officials speak openly of a possible default, and ordinary Greeks are protesting harsh economic measures their government is undertaking. A default by Greece or any of the other troubled European countries would send shock waves through the banking system and the global economy.

The big worry: Investors are terrified they'll endure a repeat of the panic that struck Wall Street in 2008. Then, banks stopped lending to each other because they were worried about each other's solvency. Losses on European government bonds could start a similar crisis. If global credit markets were to freeze the way they did three years ago, that would slow economies on both sides of the Atlantic.

Hint of a slowdown

Investors rattled: The powerful Chinese economy is supposed to account for a third of global growth this year. But a report this week showing that Chinese manufacturing is contracting sent financial markets into a tailspin. Perhaps it shouldn't have been a surprise: China's central bank has been raising interest rates to slow growth and bring inflation under control. Analysts say investors overreacted to one limited report. The world's second-biggest economy may be slowing, they say, but it still boasts enviable rates of growth. The IMF this week estimated China's growth at a still-sizzling 9.5 percent. Its estimate for the United States is just 1.5 percent.

Growth limits: Despite China's rising power, experts say its economy is not big enough to compensate for meltdowns elsewhere: Chinese investment and spending is only one-sixth that of the European Union and United States. To make up for a 3 percentage point drop in growth in those economies, China would have to grow by 18 percent this year. "This is mission impossible," Deutsche Bank economist Ma Jun said in a report.

World of hurt 09/23/11 [Last modified: Saturday, September 24, 2011 12:10am]

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