NCPA - National Center for Policy Analysis

Few Tools Left to Jumpstart Economy

April 22, 2011

Hope that the global economy has shaken off the dust of the 2007-2008 financial crisis is giving way to uncertainty as the Arab Spring and disaster in Japan threaten to reverse recovery momentum.  Market behavior is signaling a slowdown in U.S. growth, but there are few options left for policymakers as fiscal and monetary stimulus fade.  Budget pressures will make further stimulus unlikely, leading to mounting uncertainty about the way forward, says John H. Makin, a resident scholar at the American Enterprise Institute.

In his study, Makin makes the following key points:

  • Instability in North Africa and the Middle East, tragedy in Japan and rising energy prices make for a highly uncertain global economic outlook.
  • Major segments of the global economy are withdrawing fiscal and monetary stimulus, and higher pressure on oil supplies will likely cut overall demand growth.
  • The global economic recovery is still dependent on U.S. consumption and investment, but first quarter U.S. growth estimates have been revised down from 4 percent to 2.5 percent.
  • U.S. policymakers have few tools left to jumpstart the economy if it stalls midyear after the second round of quantitative easing and second stimulus fade.

Source: John H. Makin, "Uncertainty Mounts," American Enterprise Institute, April 2011.

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