New Index Tracks Sputtering Economic Recovery

In this written commentary, the two Brookings economists are not any more cheerful than other economic forecasts have been in the recent quarter. Their report’s first words are, “The world economy is showing scattered signs of vigor but remains on life support, mostly provided by accommodative central banks.” Of advanced countries they write: “With fiscal policy already in a tight spot and monetary policy out on a limb in these economies, the room to boost domestic demand is limited.” About Europe specifically, Prasad and Foda say that austerity measures undertaken at the same time as structural reforms are leading to declining growth and political instability.

The “scattered signs of vigor” are to be found mostly in the U.S., where “the unemployment rate continues to drop and employment growth has begun to pick up,” together with first quarter stock market gains and credit growth.China also gets a positive plug for seeming to be “engineering a soft landing for its economy.”

But the tenor of the report, along with specific references to Japan, Europe, India, Brazil and Russia, remains predominantly gloomy.  The authors conclude that “the global economic recovery is still sputtering due to a lack of robust demand, policy tools that are stretched to their limits and unable to muster much traction, and enormous risks posed by weak financial systems and political uncertainty.”