Fragile Economy Struggles to Rebound
RENEE MONTAGNE, Host:
NPR's business news starts with somber words from the chairman of the Fed.
(SOUNDBITE OF MUSIC)
MONTAGNE: Federal Reserve Chairman Ben Bernanke said interest rates will likely stay low for a long time. Bernanke was on Capitol Hill this morning and he told lawmakers the job market is still too weak to raise rates.
BEN BERNANKE: Of particular concern because of its long-term implications for workers' skills and wages is the increasing incidence of long- term unemployment. Indeed, more than 40 percent of the unemployed have been out of work for six months or more, nearly double the share of a year ago.
MONTAGNE: To put the economic news in a more global context, we called David Wessel. He is economics editor of the Wall Street Journal and a regular guest on this program.
DAVID WESSEL: Good morning, Renee.
MONTAGNE: So David, cast your gaze across the globe and give us a snapshot of how the world is doing economically.
WESSEL: Well, in Asia the recovery is surprisingly strong. Asia is just leaping out of the starting blocks. Taiwan's economy grew 18 percent in the fourth quarter at an annual rate. Thailand's at 15 percent. In Europe it's not nearly as good. Europe is growing very slowly, barely at all. In Germany, we were told today, in the fourth quarter the German economy didn't grow at all, and it would have shrunk if it hadn't been able to export a lot more to other places. The U.S. is somewhere in the middle.
MONTAGNE: Well, let's go back where you began and talk about Asia; how is it that it's doing so well?
WESSEL: Really, the good news about Asia is that it if you're a neighbor of China, you have a strong market. The Chinese economy is benefiting from this huge dose of fiscal stimulus that they applied. In fact, it's doing so well that the Chinese Central Bank is trying to put on the brakes by getting the banks to lend a little less readily, and that's spreading to the rest of Asia. But in Asian countries around China, there's a lot of consumer demand - people taking trips, buying cars and so forth, so that's propelling their economies forward at a time when the rest of the world is still in a funk.
MONTAGNE: And we've been hearing a lot about Europe, especially Greece of late. And as small as Greece's economy is, it seems to having big repercussions or at least that's the fear.
WESSEL: Right, growth is much slower all across Europe. The abilities of the Greek government to manage its budget and its debts has cast a shadow over the whole 16-country region that shares the single currency, the Euro, and so that's raised interest rates that some of the other countries have to pay when they borrow like Spain.
They have very high unemployment. Their banks haven't yet come clean and dealt with all the problems that were caused by the financial crisis, and there just doesn't seem to be much oomph in the European economy, so they're relying on exporting to the rest of the world. And that's why they're so happy that the Euro has started to fall, 'cause the only benefit of that to them is it makes their exports cheaper.
MONTAGNE: Okay, bring us back to the U.S. How are we doing right at this moment, this morning?
WESSEL: Well, we're doing better. We're not growing nearly as fast as Asia, but we're doing much better than Europe. U.S. banks are much farther along in the repair process, but of course, they're not lending very much. We learned yesterday that bank lending in the U.S. has fallen very precipitously, and unemployment remains stubbornly high and shows no signs of coming down quickly. So we're doing better, but we're not doing great.
MONTAGNE: So let's bring our little review here to an end by talking about the Fed. The Federal Reserve has a policy of ultra-low interest rates, has for some time. Where does all this that you just said leave the Fed?
WESSEL: Well, the Fed thinks that the economy is a little healthier and healthy enough so they can end some of their emergency lending programs that they put in during the crisis. But it's not healthy enough to raise short-term interest rates from the near zero level where they are or to drain some of the trillions of dollars they've pumped into the economy.
Their latest forecast shows that they expect unemployment to remain high - above eight percent through 2011. They see very little upward pressure on inflation. So I think they're trying to convince everybody that they are prepared to turn the credit spigot when the time comes, but that time isn't here yet. It's at least six or eight months away.
MONTAGNE: David, always a pleasure to talk with you.
WESSEL: You're welcome, Renee.
MONTAGNE: David Wessel is economics editor of The Wall Street Journal.
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