While much of the world blames the United States for triggering the global financial crisis and recession, most nations also are looking to America to start pulling the rest of the world out of the slump.
A parade of foreign financial leaders in town for this weekend’s spring meetings of the International Monetary Fund and World Bank denounced the financial excesses on Wall Street that have cost millions of jobs and caused trillions of dollars in lost output from Detroit to New Delhi. Yet they also hailed some tentative signs of stabilization in the U.S. economy after a winter of free fall that led the world economy into its worst downturn in modern times.
“The beginning of the recovery has to come from the United States, and will come from the United States,” said IMF director Dominique Strauss-Kahn, reflecting widespread hopes that signs of improvement emerging in the United States this spring will blossom into a full-fledged global recovery by the first half of next year.
Mr. Strauss-Kahn and others were quick to add that “the crisis is far from over” and there are “still long months of economic distress in front of us.” But he hung his hopes on tenuous signs that U.S. consumer spending stopped falling early this year, while housing and a few other vital sectors more recently appear to be bottoming out after plunging to their worst levels in decades.
Global stock markets already have seized on signs of an impending U.S. recovery and staged solid rallies in the past month.
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The United States after World War II became the world’s main engine of growth, and it remains the world’s largest economy, though competing economic power centers have emerged in Europe and Asia. But despite sometimes breathtaking growth in China and other emerging giants in recent years, the global financial crisis has illustrated how central the United States remains to the world economy.
Economists say a reprise of the U.S. role as the engine of global growth may be even more vital today because of the increasingly dire economic conditions on every continent.
“The United States has been the epicenter of the global financial turmoil” that began here in the summer of 2007, said Jay H. Bryson, global economist at Wachovia Securities.
“Not only did the crisis begin here, but American financial institutions account for the lion’s share of $1.3 trillion in write-downs” for defaulting loans worldwide, he said. But perhaps because the crisis began in the United States nearly two years ago, prompting a long and deep recession that began in December 2007, the U.S. economy now is further along on the road toward recovery.
“The U.S. should be the first major economy other than China to experience growth,” and that will begin to pull along close trading partners in North America and Europe, which remain deeply mired in recession, Mr. Bryson said.
China’s economy has continued to grow throughout the crisis, fueled by a big spending program to rebuild infrastructure destroyed by an earthquake last year. China augmented that program after the financial crisis turned severe in October.
China’s buoyancy has helped to cushion the fall among its Asian trading partners, as well as among commodity exporters like Australia, Brazil and Canada that sell raw materials such as coal, oil and soybeans that the Chinese consume voraciously. It even has helped a few American firms like Caterpillar, which benefits from sales of heavy earth-moving equipment to China.
Chinese officials have recently trumpeted that they expect growth to pick up from a low of 6 percent in the first quarter to the double-digit rates China enjoyed earlier this decade, in what would be the first clear recovery by a major economy. But despite all its progress, economists say China still is unable to generate growth around the world like the United States does with its widespread wealth and army of 300 million consumers.
“The Chinese economy is not large enough to have a significant effect,” Mr. Bryson said, although its recovery will help boost exports some in the United States and other developed countries.
Some economists are confident that the U.S. economy is turning the corner and about to stage a solid recovery. They point to a dramatic run-down in inventories at U.S. businesses in the first quarter, which contributed to another quarter of economic contraction of around 5 percent.
But after selling off all their surplus goods, U.S. businesses are now in a position to start producing goods again, which will lead to growth in future quarters, said Roger M. Kubarych, economist at Unicredit Markets.
“The inventory cycle heralds the end of the U.S. recession,” he said. Still, he expects “the upswing will be very lackluster” because of lingering drags on consumer spending from high unemployment and household debt.
James K. Galbraith, economist at the Levy Institute, said he questions such optimism, not only because of the monumental debt burdens still hanging over consumers, but because more “shoes could drop” that would deepen the economic turmoil in the United States. Those include an implosion in the insurance or commercial real estate markets, as well as burgeoning defaults and losses on credit-card debt now beginning to plague banks.
If a fragile recovery does emerge in the United States later this year, he said, it also could be thwarted by an as-yet unreformed financial sector that is relying on the government for life support, or by calls from Congress to start reversing the huge fiscal stimulus pushed through earlier this year, Mr. Galbraith said.
Foot-dragging in Europe and other nations that have been slower than the United States in responding to the crisis also could defeat a recovery, he said.
“It is quite possible that the rest of the world will not cooperate in economic recovery even if one gets started here,” he said.
Robert Ward, director of global forecasting at the Economist Intelligence Unit, said he also is skeptical that a global recovery is on the way, despite some positive economic news recently.
“The global economy will probably stop deteriorating, but a return to healthy growth remains a distant prospect, as the imbalances to be absorbed are massive,” he said.
Treasury Secretary Timothy F. Geithner on Friday noted the signs of improvement in the U.S. economy and financial markets, but said it’s important for major global players assembled at the IMF meetings not to get distracted from their goals of stimulating growth and fundamentally reforming the banking system to ensure no recurrence of the crisis.
“We are right to be somewhat encouraged, but we would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy early last fall,” he said. “The origins of this crisis were a long period of increased borrowing and leverage and the breakdowns in many financial markets and institutions around the world. Crises that follow credit booms and originate in the collapse of financial systems tend to be more virulent and longer lasting.”