The U.S. and China, the world’s traditional twin sources of growth, are planting seeds to lift the world economy from its midyear slowdown.
Among the green shoots indicating faster expansion: stronger housing demand and hiring in the U.S. and accelerating factory output and retail sales in China. Responsible for a third of the world economy, the two countries are now providing ballast internationally as Europe and Japan stagnate.
“China and the U.S. are both improving, which is extremely good news,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in a telephone interview. “If we could pretend Europe and Japan didn’t exist, the world would be fine.”
The rebound’s endurance may depend on whether authorities can clear a fog of doubt surrounding policy. U.S. lawmakers are debating how to curb $607 billion in automatic tax increases and spending cuts by year-end, while a once-in-a-decade leadership shift in China may raise questions about its direction. Elsewhere, Europe’s crisis-fighting remains erratic and Japan faces its own fiscal and political dilemmas.
“Policy uncertainty is affecting business confidence, delaying capital expenditure especially in the U.S.,” said Tim Drayson, global economist at Legal & General Investment Management in London and a former U.K. Treasury official. “The potential if we get a resolution of some of these issues is a release of pent-up demand.”
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