BRISBANE, Australia: United States President Barack Obama carries a big stick with him when he arrives in Australia on Friday to meet with leaders of the world’s largest economies—the US economy.
It might feel tepid at home. But the US economy is growing, the jobless rate is falling, and stocks are soaring.
By contrast, much of Europe is flirting with recession. Latin American powerhouse Brazil is already there. Japan’s central bank is purchasing financial assets in a desperate bid to bolster its long-suffering economy. Russia’s currency is in freefall amid global financial sanctions. Even China, the world’s other engine for growth, is struggling to reach a 7.5-percent growth target, sizzling for most of the world but tepid for the Asian power.
That contrast will strengthen Obama’s hand as he meets this weekend in Australia with the leaders of the world’s top 20 economies, a meeting where they’ll be looking for ways to stimulate the world’s economy and he’ll be arguing that everyone else should follow the US lead.
“Despite the election results, the US president goes in with a fairly strong hand in the sense that the US economy seems to be the strength of the world economy,” said David Dollar, a senior fellow at the Brookings Institution.
Obama is using it as a calling card on a three-country trip to Asia and Australia, a message he prefers to his own Democratic Party’s losses in last week’s midterm elections.
“The one global necessity is and has been American leadership,” he said in China, his first stop. “And that leadership in the world is backed by the renewed strength of our economy at home. Since we started creating jobs again, the US has put more people back to work than Europe, Japan and every other advanced economy combined,” he added.
The US economy grew at a 3.5-percent annual rate in the most recent quarter, after growing at a 4.6-percent rate from April through June. The jobless rate fell to 5.7 percent in October, much faster than most experts had predicted.
While still elevated by historical standards, the US jobless rate remains best in show. By comparison, the jobless rate in Europe ranges from 6.3 percent in Germany, Europe’s most solid economy, to 24 percent in Spain.
It all leaves the United States “in its strongest position in years” at such international economic summits such as this weekend’s Group of 20 meeting in Brisbane, said Douglas H. Paal, vice president for studies at the Carnegie Endowment for International Peace.
Obama will try to use that leverage to persuade the rest of the world, particularly Europe and Japan, to do more to stimulate their economies.
“Status quo policies in Europe have not achieved our common G-20 objective of strong, sustainable and balanced growth,” Treasury Secretary Jacob Lew said on Wednesday in Seattle on his way to Australia. “The world cannot afford a European lost decade,” he added.
In Japan, he said, “the jury is still out” on efforts to boost growth after its “lost decade” of stagnation.
More infrastructure spending
Against that backdrop, G-20 leaders will talk about stimulating demand, code language for more government spending on infrastructure projects such as ports and highways.
China has been doing this sort of spending. Germany, the world’s top exporter, has not, loath to take on debt during a slowdown.
“The key is to get Germany to stimulate domestic demand and reduce their massive [trade]surplus,” Mark Zandi, chief economist for Moody’s Analytics, said in an interview from Germany. “Focusing on a balanced budget at this time is a serious error,” he added.
Obama and other European nations will be pressing for Germany to reduce the trade imbalances it has with the rest of world by spending more money at home on things that will generate consumption and employment.
“If you could get the Germans to commit, that would probably be good for Europe as well as the United States,” said Edwin “Ted” Truman, a scholar at the Peterson Institute for International Economics and a former top Treasury Department official for international affairs.
Germany and many countries resist such stimulus, however, refusing to run up debt amid a protracted global slowdown.
And there are worries that steps already taken by central banks in Europe and Japan to stimulate their economies through purchases of stocks and bonds may distort global currencies relative to the US dollar. A weaker euro or yen provides home-court advantage to domestic companies in Europe and Japan, and makes their products cheaper abroad when competing against American exports.
One leader likely to agree to a call for more infrastructure spending is new Indian Prime Minister Narendra Modi, a pro-business nationalist who vows to revamp his nation’s economy.