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June 24, 2017

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Fork in the road as US outstrips still stumbling Europe

LONDON--Slowly but surely, the global economy is witnessing a modest parting of the ways as the United States pulls ahead of a eurozone still shell-shocked by its debt and banking crisis.

To be sure, a slew of reports this week will show neither America nor Europe in great shape.

But while advance October surveys of purchasing managers are likely to confirm the eurozone stuck in recession, U.S. economic growth probably picked up to a 1.8 percent rate in the third quarter from 1.3 percent between April and June, according to a Reuters poll.

The eurozone polls were due on Wednesday with the U.S. gross domestic product release scheduled for Friday.

"My impression is that there is more of a divergence re-emerging between the U.S. and Europe," said Andrew Kenningham with Capital Economics, a London consultancy.

Retail sales, auto purchases and the housing market have all perked up in the United States as the Federal Reserve's ultra-loose monetary policy shows signs of gaining traction.

Brighter in the Long Term

Politicians in Washington are likely to avert a plunge off the "fiscal cliff" at year's end, while U.S. corporations remain in quite good shape, judging by their productivity, profitability and leverage, Lipsky said.

"The energy outlook for the U.S. remains differentially favorable relative to almost any other advanced economy," he added. "And finally, do not discount the revolution in U.S. manufacturing, especially in the use of new technologies such as 3D printing."

Nonetheless, short-term growth is unlikely to generate enough jobs to impress the Federal Reserve, which is aggressively buying bonds — a process known as quantitative easing (QE) — to keep interest rates lower for longer to boost investment and employment.

As the central bank opted for a third round of QE asset purchases six weeks ago, economists expected little change in the policy-setting Federal Open Market Committee's statement setting out its stance after a two-day meeting on Thursday.

Asian Exports

The diverging fortunes of Europe and the Unites States are reflected in Asia's export data.

Chinese shipments to the United States were up 5.5 percent in September year-on-year; those to the European Union were down 10.7 percent.

Taiwan's September export orders from the Unites States turned positive last month, up 9.2 percent from a year earlier, while those from Europe were down 5.6 percent.

Firming external demand was one reason Goldman Sachs expected a modest improvement in a survey of Chinese purchasing managers, due on Wednesday.

On the same day, alongside a similar poll of eurozone buyers, a monthly survey by the Munich-based IFO Institute will indicate whether business confidence has been rising after the European Central Bank's promise to buy the bonds of troubled euro members.

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