Five years after the financial crisis ended, soft growth in Europe, a stop-and-start U.S. recovery and waning momentum in China have policy makers groping for what to do next.
A spate of worrying economic data Thursday shook stock and bond markets. Economic activity in the 18-country euro zone expanded at a weak annual rate of 0.8% during the first quarter, data released Thursday showed. Excluding Germany, which grew at a robust 3.3% pace, the rest of the euro-area economy contracted slightly during the quarter.
European Central Bank officials are now moving toward enacting additional low interest-rate policies to prevent the region from sliding into a lengthy period of economic stagnation, while the U.S. Federal Reserve guardedly tries to wind down a bond-buying program meant to revitalize economic growth.
Meantime, Chinese authorities are trying to prod banks to lend more to first-time homebuyers shut out of their real-estate market. U.S. officials privately say they expect Chinese officials to act to boost their economy and support banks if growth slows severely, though Chinese officials say they will avoid major stimulus if it undermines economic overhauls or deepens credit woes.
Underscoring the sense of angst, stock prices dropped sharply Thursday in Europe and the U.S. The Dow Jones Industrial Average fell 167.16 points, or 1.01%, to 16446.81.
Yields on bonds issued in big developed markets continued to fall Thursday. Yields on German bunds with 10-year maturities sank to 1.307%, their lowest level in a year, while yields on 10-year U.S. Treasury notes fell to 2.498%, the lowest level in six months.
'It will take a long time before we see a real recovery,' said Andrea Illy, Chairman and chief executive of Italian coffee maker Illy Caffè. 'I'm really skeptical on how and if we can grow, and I hear the same feelings among entrepreneurs and consumers in Italy.'
New U.S. data released Thursday showed the mixed economic backdrop that Fed officials confront as they scale back a bond-buying program aimed at lowering long-term interest rates, and consider how much longer to keep short-term rates near zero.
U.S. industrial output slumped in April, according to a Fed report, and a survey showed sentiment of U.S. home builders slipped. Many Fed officials believe U.S. growth is rebounding in the second quarter after slumping in the first period largely because of bad weather. Hiring has been robust of late. Still, some officials see the first half of the year shaping up as a disappointment.
'My guess is that we will see some pickup as we get into the second half of the year, but the longer we go without getting the 3% growth that many people had in their forecasts, the more concerned you have to be that there are other things going on that we hadn't fully appreciated,' Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview Thursday. Mr. Rosengren is in the camp of Fed officials who have supported aggressive responses to slow growth and low inflation.
Complicating matters for the Fed are signs that inflation is heading back toward the Fed's 2% goal after running below that for nearly two years. The U.S. consumer price index rose 2% in April from a year earlier, a notable pickup from a 1.5% pace in March and a 1.1% pace recorded in February.
Mr. Rosengren said it was 'too soon to know' whether the latest figures indicate the economy is heating up enough to push consumer prices much higher. The Fed's preferred measure of inflation, called the personal consumption expenditures price index, is 'still pretty low,' he said.
Fed Chairwoman Janet Yellen told lawmakers last week she expected the central bank to finish winding down its bond-buying program by the fall.
If inflation picks up, it could hasten a Fed discussion about when to start raising interest rates, but such a debate still looks premature. A sharp drop in long-term U.S. interest rates in recent days suggests investors--along with most Fed officials--don't see rate boosts until well into next year at the earliest.
China, the world's second-largest economy, is another major factor shaping the global economic outlook. A report out earlier this week showed 9.9% declines in home sales during the first four months of the year in China, compared to a year earlier. Retail sales and industrial production also slowed.
Authorities have already rolled out what they call 'mini-stimulus' measures. And in one recent sign of concern about China's sluggish property market, People's Bank of China officials earlier this week pushed the nation's major lenders to give priority in mortgage lending to first-time home buyers, according to a statement posted on the central bank's website Tuesday. The central bank also pushed the commercial banks to set mortgage rates at 'reasonable' levels.
For now, though, the most aggressive government efforts to boost growth are taking shape in Europe.
ECB President Mario Draghi put financial markets on notice last week that the bank will probably announce new measures in June to try to lift inflation, which was 0.7% in April, well below the ECB's target of just under 2%.
More officials emerged Thursday in support of Mr. Draghi's comments. 'We are determined to act swiftly, if required, and don't rule out further monetary-policy easing,' ECB Vice President Vitor Constancio said in a speech in Berlin.
At the ECB, as at the Fed, officials have their doubts about how much more they can be expected to do to boost an economy facing a wide range of headwinds, many of which are beyond their control or mandate to confront.
Legacies of the crisis--including debt overhangs, impaired banks, high borrowing costs for small businesses and a general shortage of demand--are combining with Europe's longer-term structural problems, such as rigid labor markets and high taxes on employment, to slow growth.
Although it isn't yet clear how ambitious or effective the ECB's next steps will be, interest-rate cuts and some measures to encourage more bank lending look increasingly likely.
'We're seeing a cyclical pickup in activity, but it's anemic, given the depth of the slump,' said Simon Tilford, deputy director of the Center for European Reform, a nonpartisan think tank in London. 'Typically, you'd expect faster growth in the aftermath of such a recession,' he said.
意大利咖啡生产商意利咖啡(Illy Caffe)董事长兼首席执行长安德烈•意利(Andrea Illy)称，在看到真正的经济复苏之前还得等待很长时间。他表示，他本人对于经济如何或者能否增长持怀疑态度，意大利的企业家和消费者也这么认为。
波士顿联邦储备银行(Federal Reserve Bank of Boston)行长罗森格伦(Eric Rosengren)周四接受采访时称，他猜测，步入下半年时经济增速将有所升温，然而，越是迟迟达不到许多人原先预期的3%增速，越是需要担心起来，可能还有其他一些没有完全预料到的情况。罗森格伦是美联储中支持采取大规模政策应对增长放缓和低通胀问题的官员之一。
欧洲央行(European Central Bank)行长德拉吉(Mario Draghi)上周成为金融市场焦点。他称，该行可能会在6月份宣布旨在推高通胀率的新措施。欧元区4月份通胀率为0.7%，远低于欧洲央行设定的略低于2%的目标。
伦敦非党派智库欧洲改革中心(Center for European Reform)的副部长蒂尔福德(Simon Tilford)表示，经济活动出现周期性回升，不过考虑到此前滑坡的幅度，经济形势依旧疲弱。他称，通常来说，在如此程度的衰退之后，经济应当会更快速增长。