What shape are the world's economies in?


New economic growth estimates from Europe have delivered the latest snapshot of how some of the world's leading economies are faring.

It's been a busy week for economic data, giving policymakers the chance to take stock of where their economies are heading.

In the UK the governor of the Bank of England described "choppy" waters ahead, while the US Federal Reserve has had to promise to maintain its stimulus support for the US economy amid signs its recovery is faltering.

So what kind of shape are the world's big economies really in?

Europe: Germany grows but Spain struggles

By Ben Shore, Brussels

Image caption,
Germany's export growth has helped it recover strongly from recession

On the surface, this looks like a major comeback for the eurozone.

As a whole the EU saw growth of 1% in the second quarter, as did the 16 countries that make up the eurozone.

Germany and France, the two engines of the European economy, have both beaten analysts' expectations.

France's economy grew at a respectable rate of 0.6% in the second quarter. But the real story here is Germany.

Not since the Berlin wall divided the country has Europe's biggest country seen growth of 2.2% in a single three month period.

Some of the boost can be explained by its immense manufacturing sector regaining ground lost in 2009. But Germany's statistics agency suggests that German consumers are also finally spending.

The French shopper also seems to have chipped in helpfully for French growth numbers.

The ugly duckling here though is Spain. It's economy grew by a measly 0.2 percent between April and June.

Again, household spending seems to have played a part but this is really anaemic growth in a country which money markets have highlighted as potential victim of contagion from the Greek debt crisis.

The question of sovereign debt still hangs over today's numbers and the problem for Spain is that if it doesn't grow quickly enough it will struggle to pay off its debts.

Observers have noted that Spain, Portugal, Ireland and Greece are still paying much more for their debts than Germany - a sign of lingering concerns about their creditworthiness.

Rates are not at the alarming levels seen in May but they are enough to remind us that Europe is not out of the woods just yet - and it is by no mean guaranteed that the next six months will be as spectacular as the last three months appear to have been.

UK: Spending cuts stalk the recovery

By Edwin Lane, London

The governor of the Bank of England Mervyn King fired a warning shot across the bow when he said the UK faced "choppy" waters ahead on its path to economic recovery.

Image caption,
Government plans to cut spending could hit the recovery

Growth forecasts have been lowered, both by the Bank and the government's new Office for Budget Responsibility, but the consensus is still that the UK will keep growing this year and next, albeit at a slower pace.

That said, the government's plans for steep cuts in public spending over the next five years have hit confidence, with some suggesting the UK could be heading for a double-dip recession.

Economic indicators paint a mixed picture. On the jobs front, unemployment remains at just below 2.5 million, and has levelled off since the sharp rises in 2008.

But it has yet to start falling significantly, and the public sector job losses expected as a result of spending cuts mean another rise is not being ruled out.

Mervyn King has highlighted low levels of lending by UK banks as a potential problem, acting as a restraint on economic growth.

He has also pointed out that, with inflation likely to remain relatively high over the coming months, interest rates are expected to stay low until well into next year at least.

There are mixed signals from other parts of the economy too. In the housing markets, repossession levels have continued to fall as interest rates stay low. But house prices have also showed signs of falling, according to estate agents in a survey released this week.

The UK's manufacturing and services sectors have both reported strong growth, but warn of the impact the government's cuts could have on their future prospects.

The economy appears finely balanced, and it remains to be seen whether the recovery will survive the spending cuts to come.

US: Is the recovery stumbling?

By Caroline Hepker, New York

Americans are often optimistic - but not right now. It seems the US recovery is stumbling and refuelling the recovery may be tough.

Image caption,
The US continues to struggle with high unemployment

The Federal Reserve, America's central bank, said this week that the pace of recovery had slowed in recent months and was likely to be more modest in the near term.

This comes on top of last week's poor jobs report. American firms cut payrolls by 131,000 in July, the second month in a row of job losses.

Overall, the US economy has been growing since the so-called Great Recession. In the last quarter, it grew at an annualised rate of 2.4%. But now some economists suspect that estimate may be too high.

The problem for the Federal Reserve is that interest rates, its most powerful tool, have been near zero since December 2008.

The central bank has also been trying to reduce the extraordinary help it offered during the Wall Street crisis.

But this week, the Fed did reassure investors by pledging to keep in place more than $2 trillion (£1.3tn) of support. The bank may have to do more if the economy continues to worsen.

The pressure is mounting on the Obama administration too. President Obama's $800bn stimulus package has been and gone.

Lawmakers have agreed to further stimulus spending on unemployment benefits and $26bn of aid to states. But agreeing any more outlays could be impossible given the controversy over the ballooning budget deficit.

And the president's Democratic Party could end up weakened in the mid-term elections this November. Mr Obama's approval ratings have tumbled to just 45%. Americans are increasingly holding this President responsible for the country's grim economic problems.

China: The powerhouse powers on

By Chris Hogg, Shanghai

China is enjoying high wage growth in many sectors, moderate inflation and low levels of household debt which are helping to keep consumption levels healthy here.

Image caption,
The Chinese government has restricted property sales in order to cool inflation fears

Chinese consumers are in fact expected to drive much of the country's GDP growth this year.

The government has imposed new restrictions on property transactions- targeting both buyers and developers to try to cool the market.

It has told the banks to cut back their lending. And it has continued to wind down the economic stimulus package - the massive programme of infrastructure investment that got the country through the world financial crisis.

But July's data suggest property construction is still growing more strongly than expected. Exports too.

So what will the government do next?

Many investors were looking for signs of a slowdown in both sectors, in the hope that this would persuade the government to relax the measures it introduced to cool the economy.

July's figures make that less likely, for the moment at least.

There are those, of course, who fear the Chinese economy could suffer a "hard landing" if there's a sharp downturn in the property market and the export revival turns out to be short-lived.

But July's data suggests this is not about to happen yet. Exports in particular have been buoyed by strong demand from all the country's major markets.

And although the optimists and the pessimists among the economists here argue as fiercely as ever about the prospects for the property market in the months ahead, it seems unlikely the government will change policy and make it easier for people to buy and sell their homes just yet.