U.S. leads rich-world recovery as Europe lags: Reuters poll (Reuters)

We have all read great articles written by talented authors. This showdown U.S. leads rich-world recovery as Europe lags: Reuters poll
was a long time a coming. But U.S. leads rich-world recovery as Europe lags: Reuters poll
(Reuters) doesn’t stop here. The writer shows two wonderful talents. Read the the whole sections to see what I mean.

LONDON (Reuters) – The United States will lead the rich world’s economic recovery over the next two years while Japan and major European economies flounder by comparison, according to Reuters polls of more than 200 economists.

Backed by strong retail sales that rose for the fifth straight month in November, the poll showed expectations U.S. consumers will step up demand, prompting a wave of upgraded forecasts for economic growth there.

By contrast, economists kept a somber growth outlook for the euro zone and Britain, both in fiscal retreat, while in Japan they predicted a brief and sharp contraction in the current quarter followed by modest growth thereafter.

“Three months ago the key issue for markets was whether the softness in economic activity was temporary or a sign of something more concerning,” said Barclays’ Head of Research Larry Kantor in a research note.

“The vast majority of recent data readings, however, have made it clear that it was no more than a pause — one that signaled a transition from the initial inventory and stimulus-led surge in growth to a more sustainable, but still solid, expansion.”

The Reuters survey showed U.S. gross domestic product growth averaging 2.7 percent next year, up markedly from the 2.3 percent seen in the November poll. Analysts expect the economy to pick up steam in each quarter through to the end of 2011.

While this would be one of the stronger growth rates among the rich G7 nations, emerging economies like China and India have shown far greater rates of expansion, with China in particular taking steps to control an overheating economy.

Among reasons economists gave for upgrades to their U.S. forecasts was the extension of tax cuts originally implemented by former president George W. Bush, as well a renewal of emergency jobless benefits and a 2 percentage point reduction in the payroll tax.

The poll was conducted after President Barack Obama stuck a deal on taxes last week with opposition Republicans, a bill that looks headed for overwhelming passage through the Senate on Wednesday.

While the new fiscal plan has divided both political and economic opinion, analysts suggested it would support consumer spending next year, which accounts for around two-thirds of economic activity.

“A variety of factors, from the extension of tax cuts to expansionary monetary policy, from stabilization on financial markets to healthy corporate balance sheets, suggests that growth will progressively accelerate during 2011,” said Diane Swonk, economist at Mesirow Financial.


Still, respondents warned high unemployment still poses a significant risk to the U.S. recovery, as does the risk that the euro zone debt crisis might escalate further and harm the global financial system.

Fears that debt-laden euro zone members like Portugal and perhaps even Spain might become the centers of new financial crisis, coupled with broadening austerity measures, will likely keep a lid on euro zone growth for the next two years.

The poll showed quarter-on-quarter economic growth will linger between 0.3 and 0.5 percent in each quarter through to the end of 2012, as the bloc’s periphery drags badly behind strongly performing French and German economies.

“While the risk of a double dip for the euro zone as a whole has receded, recessionary conditions are likely to persist in those economies suffering the after-effects of the excesses of the pre-crisis era,” said Ken Wattret at BNP Paribas.

The survey also revealed that next year European policymakers will probably need to increase the size of its 440 billion euros ($586 billion) share of the European Financial Stability Fund — one of the mechanisms designed to restore confidence in damaged euro zone government finances.

Prospects for growth do not look much better in Japan, whose economy looks likely to contract in the current quarter, before recovering modestly next year.

Hurt by a soft export market and the expiry of government stimulus, economists said the Japanese economy likely contracted 0.4 percent in the current quarter, with modest rates of growth returning in 2011.

Analysts expect Japan to remain in a deflationary rut well into 2012, keeping the Bank of Japan’s near-zero interest rate policy intact for the foreseeable future.

The British economic growth outlook looks only slightly more favorable than its euro zone peer, as it too commits to a vast austerity program. Respondents also said inflation there would stay well above the Bank of England’s 2 percent target through 2011, driven upwards by a hike in the VAT sales tax.

“With a significant fiscal tightening expected next year, the big question is whether the resilience in private sector demand will continue in 2011,” said Commerzbank’s Peter Dixon, who added that he was cautiously optimistic about this.

(Editing by Stephen Nisbet)

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