Friday, 10 February 2012
Not quite party time.
Signs of recovery have multiplied, but the West’s economies are not yet out of danger.
Feb 11th 2012
from the print edition
A NEW self-assurance has spread through financial markets.
Why the exuberance? In part it reflects genuinely good economic news, especially in America, where January’s far stronger-than-expected employment figures, along with upbeat statistics from manufacturing and services, suggest that recovery in the world’s biggest economy really is gaining momentum. Calamities that seemed all too plausible a couple of months ago, such as the collapse of a big European bank or a series of failed bond auctions leading to the imminent fracturing of the single currency itself, now seem highly unlikely.
Will the good news last? Recent history suggests caution. A year ago America’s economy was widely expected to accelerate, boosted by the Fed’s second round of bond-buying. Instead growth slumped, pulled down by a combination of outside shocks (higher oil prices as a result of the Arab spring, disrupted supply chains after the Japanese earthquake) and policy errors at home and abroad (America’s debt ceiling and the ever-deepening euro mess).
America’s economy is in better shape this time, not least because households have reduced their debt further. But the euro zone’s debts are bigger than ever; many of its economies are in recession. And the list of potential spoilers is uncomfortably similar to that of a year ago. Tensions with Iran could cause a 2012 oil shock. Meanwhile, the risk of policy mistakes remains worryingly high on both sides of the Atlantic: central bankers may have saved the day, but politicians could still mess things up.
Sadly, based on the recent past, it’s plain prudent. This newspaper will be ready to celebrate only when politicians, and not just central bankers, start making the right choices.