Hopeless world again looks to the US

The news from Europe is not good. It is nonsense to search for the real culprit who is responsible for the chaotic situation in the eurozone. Of course there are some excuses, such as the rigidity of European rules, the halt in financial deepening, political instability in some countries and so on, but these can only partially explain why there is still no sign of recovery in the old continent.

The European Central Bank is keeping the key rate at a record low, but the eurozone economy is still stalling. For some European Parliament members, rejection of the budget proposal for the union was an important step for European democracy, meaning that from now on the leaders of the EU may be forced to negotiate with the Parliament. This is good for democracy, but it might not be so good for the recovery.

Unemployment in France rose again to over 10 percent. Some even say the French economy is more worrying than Greece’s. The chief of the German Central Bank admits that restructuring economies in Europe is a must for recovery, but there is no such political decisiveness in most of the countries. The reason might be the results of recent elections and the unexpected situation due to the coming ones. However, even if governments decide to restructure they are aware that this process will take a period of time that is unbearable for Europeans at the moment.

Japan’s economy recorded positive growth at last during the fourth quarter of 2012. Although there are some over optimistic comments that this finally was the end of deflationary stagnation, the figure was only 0.2 percent. This means that it is better to wait for the results of the first and second quarters of this year for a proper forecast. In the meantime, when China aims to raise growth to 7.5 percent this year by using the same policies used in some western countries and by trying to balance income distribution, inflation jumped unexpectedly while industrial production and retail sales slowed.

In short, two important regions cannot meaningfully contribute to the recovery. On the other side of the coin, there has recently been some good news coming from the United States. The U.S. unemployment rate has fallen to 7.7 percent, the lowest since the beginning of the crisis. Despite the fight over the budget in Congress, the fiscal outlook is improving. Retail sales also rose more than expected in February. Although some American economists say that all these positive developments might not be sustainable, the rest of the world doesn’t care about such pessimistic comments and has begun to look again to America as a savior of the world economy.

However, there is an old saying in Turkish: ‘’If one has an ointment to cure his baldness, he prefers to use it for himself first.’’ Yes, the news is better as compared with other parts of the world, but - as those pessimistic economists say - but only after seeing the figures of the coming months will one be able to decide if those developments are sustainable. When the developments in job creation and retail sales continue, the contribution will come automatically to the world economy. But it is too early to expect that contribution before seeing what American consumers do during the coming months. Past experiences taught us that if they do not begin to buy homes again and do not begin to replace their cars with new ones then the sustainability of positive developments is in trouble.

In addition, everything is not going well in the U.S. Spending cuts might slowdown recovery. Sales to Europe, Japan, China, and Brazil have declined and as a result exports have fallen by 1.2 percent. Oil imports have surged 12.3 percent, while the total import figure increased 1.8 percent in January and the foreign trade deficit rose over $44 billion. Optimistic comments on the double deficits - the current account and the budget deficit - have begun to change and some prominent economists say that those deficits really do matter.

In short, there are signs of recovery, but there are also some serious problems. It is true that positive developments in the American economy are the only hope for the rest of the world. However, it is too early to expect a meaningful contribution to the world recovery this year, and maybe even next year too.