G-20 must skirt potholes, follow growth signposts

The eurozone as a whole and a clutch of its members, including France, Italy and the Netherlands, are expected to report that their economies shrank last quarter — joining Germany and the United States — while Japan's barely grew, according to economists polled by Reuters.

But the Group of 20 leading economies, which meets in Moscow on Friday, should be able to take heart from a pair of more timely indicators — a New York Fed manufacturing survey and a University of Michigan poll on consumer sentiment.

Economists expect both to show an improvement, despite the gnawing uncertainty of how long-running U.S. deficit reduction negotiations will affect taxes and spending.

Luca Paolini, chief strategist at Pictet Asset Management in London, said he was more positive on the global outlook on balance but a sense of perspective was needed. Buoyant markets risked getting ahead of themselves.

“Our own leading indicators are going up, but we don't think we're in a strong growth environment. We see weak growth, and that's not going to change this year,” he said.

Passing the Growth Baton

Simon Hayes, an economist with Barclays Capital, broadly agreed. “On the whole, recent activity data have been encouraging of our view that the global economy is improving, albeit slowly,” he said in a report.

January U.S. retail sales figures are likely to underline this point. Hobbled by the Jan. 1 increase in payroll taxes, economists expect a rise of just 0.1 percent on the month.

By contrast, U.S. capital spending is finally perking up from a low level as corporations, realizing that protracted cost-cutting is hurting productivity and growth prospects, give the green light to pent-up investments, Paolini said.

“But we're not overly optimistic because investment is based on confidence. You can have all the money you want, but you're not going to invest if you expect growth to be weak. So if we have any kind of shock — it can be politics or something else — investment will fall again,” he said.

China delivered a boost to confidence on Friday with a batch of strong trade and money data for January.

Economists are wary of reading too much into China's figures at the start of the year because of distortions due to the variable timing of the long Lunar New Year holidays.

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