The global economy is plodding ahead in fits and starts, as the largest countries struggle to achieve consistent growth.
Europe is faltering again. Japan is suddenly surging. China is cooling. The U.S. is strengthening.
In the background, central banks are aiming to administer just the right amount of stimulus — not too much, not too little. Their efforts have yet to benefit many ordinary people facing job shortages and stagnant wages.
The unevenness of the global recovery was thrown into sharp relief Thursday, when the 18 European nations that use the euro reported unexpectedly weak growth for the year’s first three months. A separate report said Japan’s economy grew in that same quarter at the fastest pace in nearly three years.
Fresh data from the United States was mixed: Factory output declined; but fewer and fewer people are seeking unemployment benefits, a sign that solid hiring should continue.
In China, weaker trade and manufacturing have reduced growth, and leaders there foresee a further slowdown.
Most economists expect the differing outcomes across the world’s major economies to add up to a modest expansion this year.
“The global economy is strengthening, though not quite as fast as many of us would like,” said Jay Bryson, global economist at Wells Fargo Securities. Bryson expects the world economy to accelerate to 3.5 percent this year from 3 percent in 2013.
Key central banks have pursued low-interest-rate policies to try to induce companies and businesses to borrow and spend. Their actions have helped lift stock markets in the U.S. and many European countries by inducing investors to shift money out of low-yielding bonds and into stocks.
Yet Japan’s Nikkei index and China’s Shanghai index have both declined over the past 12 months.
Here’s how major economies are shaping up:
The 18-nation eurozone economy eked out just 0.2 percent growth in the first quarter compared with the previous three months, just half the rate analysts had expected.
The sluggish figure masked significant disparities: While Germany posted a comparatively healthy 0.8 percent gain, the Dutch economy shrank 1.4 percent.
The overall bleak figures raised pressure on Mario Draghi, president of the European Central Bank, to inject more stimulus into Europe’s economy. Draghi hinted last week that the ECB could act as soon as next month to try to counter persistently low inflation and strengthen the recovery.
Economist Howard Archer of IHS Global Insight in London expects the ECB to cut its short-term rate to 0.15 percent from 0.25 percent. It could also impose a negative interest rate for money that banks deposit at the ECB, Archer said: The banks would essentially start paying for the privilege of parking their money at the central bank. Such a fee would likely spur the banks to lend more to households and businesses.
Other economists think the ECB could also buy bonds, a move the U.S. Federal Reserve and the Bank of England have undertaken. This would likely reduce longer-term rates and could encourage borrowing.
A key ECB goal is to lower the value of the euro compared with the dollar and other major currencies. That could boost exports and create more jobs.
It might also raise dangerously low inflation. Prices are rising at just a 0.7 percent annual rate. Inflation that low can stall growth by leading consumers to delay purchases.
The world’s third-largest economy expanded at a 5.9 percent annual rate in the first quarter, the fastest pace in nearly three years.
But much of that gain was fueled by a surge in spending by consumers and businesses aiming to beat a sales-tax increase that took effect April 1. As that accelerated spending fades, analysts expect Japan’s growth to slow.
Since taking office in late 2012, Prime Minister Shinzo Abe has embarked on a plan to spark growth through high government spending, an ultra-loose monetary policy and reforms to government regulation and labor policy.
So far, “Abenomics” is credited with helping Japan shed a long-time deflationary rut. But two key challenges lie ahead: The implementation of economic reforms could prove politically tough; and the government’s debt is now double the size of its economy, a situation that will require tight budgets.
Analysts say Bank of Japan Governor Haruhiko Kuroda will face pressure to keep rates extremely low to offset those challenges. The central bank has adopted a 2 percent inflation target, up from the latest inflation reading of slightly above 1 percent.
The U.S. economy got off to a listless start this year, as a harsh winter depressed growth. But it’s been showing renewed strength. Hiring has picked up. Americans have stepped up spending. Inflation is rising toward 2 percent, the Fed’s target. Higher inflation can be a sign of economic health because it usually reflects more spending by consumers and businesses.
Employers added 288,000 jobs in April, the most in 2½ years. That hiring raised the average monthly job gain this year to 214,000, from 194,000 in 2013. More jobs translate into more paychecks that support more spending.
Because of the severe winter, analysts estimate that the U.S. economy shrank in the first three months of 2014 by up to 0.9 percent. They expect growth to rebound in the current quarter to at least a 3.5 percent annual rate.
With the economy picking up, the Fed under Chair Janet Yellen has begun to unwind some of its stimulus. It has cut its monthly bond purchases, which have been intended to lower long-term rates. The Fed says it will continue to keep short-term rates low to support the economy even after its bond purchases end, likely late this year.
Growth has slowed in the world’s second-largest economy from the breakneck pace it sustained for over a decade. China’s economy expanded 7.4 percent in this year’s first quarter from the previous year. That’s down from last year’s 7.7 percent growth, which tied 2012 for the slowest since 1999.
China’s leaders are hardly panicking. President Xi Jinping says China should get used to slower growth. The rulers are trying to transition the economy to one that relies more on domestic consumption and less on exports and investment in buildings, homes and other structures.
Many economists worry that Chinese banks have fueled excessive investment in real estate, potentially inflating a credit bubble.