* Surveys set to show global manufacturing on the rise
* Fed under fire for fumbling forward guidance
* U.S. Congress set for debt showdown
By Alan Wheatley
LONDON, Sept 22 A clutch of surveys this week is
likely to show the global economy slowly picking up even as new
and old uncertainties combine to test the optimism of businesses
and consumers alike.
Purchasing managers indexes (PMIs) for the euro zone, China
and the United States are all forecast to climb further away
from the boom-bust line of 50. Germany's closely watched IFO
business sentiment index is also expected to show a gain.
Gross domestic product in the euro zone remains 3 percent
below its 2008 peak and unemployment is at a record high, but
the 17-member bloc is set to expand for the second quarter in a
row after 18 months of contraction, according to Bert Colijn, an
economist with the Conference Board in Brussels.
Even the construction industry, which crashed when the
financial crisis struck, appears to be bottoming out.
"The outlook continues to improve for Europe in general,"
Colijn said. "The fact that we're seeing a momentum change at
the moment is a positive signal."
Jim O'Neill, former chairman of Goldman Sachs Asset
Management, said the PMIs of the entire Group of Seven advanced
industrial countries were all rising quite significantly for the
first time since 2008.
An exceptionally strong reading last week for the
Philadelphia Federal Reserve's manufacturing survey also hinted
that the global economy was stirring.
"It's quite conceivable that declining commodity prices are
giving a big lift to real incomes," O'Neill said.
CONGRESS MUDDIES THE WATERS
That's the good news.
The bad news is that the Fed, in deciding not to start
scaling back its bond buying, has created new uncertainty by
playing down the importance of the unemployment rate in
isolation as a guide to its monetary policy.
In June, Fed Chairman Ben Bernanke said he expected to start
withdrawing stimulus this year and end asset purchases by
mid-2014, when the jobless rate was likely to be near 7 percent.
Last Wednesday, adopting a more discretionary stance, he
emphasised that he had no fixed calendar in mind.
Although markets initially cheered the tapering reprieve,
economists polled by Reuters said the Fed had failed to
communicate its views clearly in advance.
Because the Bank of England has also tied its policy to
hitting a precise unemployment target, the U.S. central bank's
shift could have broader repercussions.
"The Fed's move is a major blow for the credibility of
forward guidance," O'Neill said.
In standing pat, Bernanke said he needed more evidence of
solid growth and fretted over a sharp tightening in financial
conditions since he first flagged that tapering was on the way.
Robert Wescott, president of Keybridge Research in
Washington, put more weight on a third reason Bernanke gave - a
fast-approaching showdown in Washington over the 2014 budget and
an increase in the federal debt ceiling.
"I do think at the margin that was the factor that tipped
them into not acting," Wescott told a conference organised by
Oxford Analytica, a consultancy.
If the Senate and House of Representatives fail to pass a
funding bill, the government could shut down on Oct. 1.
Although most Congress-watchers doubt it will come to that,
Democrats and Republicans are digging in, ensuring a nervous end
to the month for markets that could deflect attention from
revised GDP, durable goods and housing data.
GERMANY AND EUROPE
Another source of uncertainty is the shape of Germany's new
government after Sunday's general election and what it will mean
for Berlin's policy towards the euro.
Angela Merkel is expected to remain chancellor but she might
need as long as two months to form a coalition.
If Merkel's Christian Democrats cannot continue to govern
with the liberal Free Democrats but are forced into a coalition
with the centre-left Social Democrats, Germany may be more open
to forging a banking union without an arduous treaty change,
said Hartmut Mayer, a fellow in politics at Oxford University.
Mechanisms to supervise, bail out and close down banks at
the euro zone level are critical to putting the single currency
on a firmer foundation.
The Social Democrats would also be more open to the
principle of euro zone debt mutualisation as part of an ultimate
solution to southern Europe's debt overhang, Mayer said.
"It would be the same chancellor but a different
constellation and I think that makes a difference, he said.