Investors jittery about global economy: Here's why

After a tough winter for the global economy, investors are looking difficult for signs of green shoots of growth. So far they've been hard to find.

In the U.S., the chilling impact of a relentless series of snowstorms is still showing up in the latest economic data. After a surge in growth during the last three months of 2013, analysts expect next week's report on gross domestic product to show the economy slowed to a crawl in the first quarter of this year.

On Thursday, the latest weekly data showed an unexpected spike in the number of Americans filing new claims for unemployment benefits. A separate report, though, showed a surprise pickup in orders for long-lasting manufactured goods.

Workers stand on scaffolding during the construction of a new building in Baiyun district, Guangzhou, Guangdong province, China.
Forbes Conrad | Bloomberg | Getty Images
Workers stand on scaffolding during the construction of a new building in Baiyun district, Guangzhou, Guangdong province, China.

Those mixed signals are echoed in reports on growth around the world, as the global economy continues to shake off the aftermath of the financial crisis of 2008 and the Great Recession.

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Much of the concern among investors centers on the historic unwinding of an unprecedented flood of money created by central banks around the world to spur growth. Now, as the era of cheap money comes to a close, some fear that the global economic recovery could be at risk if interest rates rise too quickly, making it more expensive for businesses and consumers to borrow and dampening spending and investment.

"Interest rates have been so low, but that's starting to change," said Nariman Behravesh, chief economist of IHS. "That means companies are going to be facing a tougher earnings environment. It's not to be like last year, and that's what's worrying the stock market."

Most economic forecasters expect the global recovery to remain on track, with growth picking up again later this year. In its latest assessment, the International Monetary Fund said it expects the world economy to expand by 3.6 percent this year—up from 3 percent last year—and continue strengthening to 3.9 percent growth in 2015.

A number of forces will help support that growth: Oil prices appear to be relatively stable, inflation is low in much of the developed world and wages are still rising in the developing world. In the U.S., the headwinds of budget cutting and tax increases are easing.

But the outlook for the cost and availability of credit—the lifeblood of economic growth—is a lot less clear.

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In the U.S., interest rates have risen only modestly and demand for credit remains relatively strong among consumers and businesses, despite the Federal Reserve's ongoing moves to taper off the flow of new money.

Though lenders are still choosy about approving loans, bankers continue to gradually ease up their lending guidelines. Mortgage rates have stabilized after a sharp run-up a year ago. While home price gains are expected to slow this year, the housing recovery is on track in most parts of the country.

The outlook is not as bright in Europe, where growth has stalled out for the past two years. That stagnation has dampened profits for a long list of global companies selling products and services in the euro zone.

After the implosion three years ago of southern European economies, including Greece and Spain, the economy began shrinking, lending demand softened and prices began falling. The problem, say economists, is that European central bankers never opened the money spigots like their American counterparts to repair the damage from the 2008 banking crisis.

"Euroland banking is still broken," said Carl Weinberg, chief economist at High Frequency Economics. "No one can predict economic recovery without convincing evidence of a resumption of credit growth."

European central bankers' reluctance to pump money into the system stemmed largely from persistent German fears of sparking inflation. But that financial discipline has come with a price. Though the German economy is still growing slowly, the euro zone economy overall has been in a mild recession, contracting a half percent last year.

Now, with falling prices in much of Southern Europe threatening to set off a prolonged period of deflation—a downward price spiral that can be very tough to break—German policy makers may be ready to change course, according to IHS' Behravesh.

"They beginning to recognize that what's good for them is not good for the rest of Europe," he said. "And that they may need to make some sacrifices with higher inflation in Germany so as to not have deflation in Southern Europe."

Until then, Europe is expected to struggle with high unemployment and little or no growth. IMF forecasters expect the region overall to grow by 1.2 percent this year and 1.5 percent in 2015. That doesn't bode well for companies looking to European exports for growth.

The outlook is better in Japan where, until recently, the economy had been stagnating for more than two decades after falling into the kind of deflation trap that Europe now faces. Based on a set of new policies known as Abenomics, named for Prime Minister Shinzo Abe, the government and central bank have undertaken an historic expansion of stimulus aimed at jump-starting growth.

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The results so far have been mixed. After a surge in growth last year, the economy has cooled markedly after a recent sales tax hike dampened consumer spending. Japan is also feeling the fallout from a slowdown in China, its largest trading partner.

China is suffering from a major hangover from its own massive stimulus program, a large spending spree on an epic surge in new construction—from railroads and highways to mines and towering apartment buildings. As the overall level of public and private debt doubled, much of that money went to prop up money-losing businesses—or into the pockets of party leaders and provincial officials.

"They have this horrible problem that they can't bring out too much stimulus for fear of propping up bubbles, and yet they do worry a lot about growth slowing too much," Fraser Howie, a director at Newedge Singapore, told CNBC. "The big stimulus that came out in 2009 was very much driven by mass unemployment in the coastal provinces and the Chinese government is very concerned about rising unemployment. "

As a new regime in Beijing cracks down on borrowing and spending, the once-hot Chinese economy is cooling off. But faced with the prospect of widespread social unrest if growth falls further, many analysts believe that Chinese leaders will continue provide enough stimulus to head off a deeper slowdown.

Still, while the global recovery is expected to continue, slowing economies in Europe and China will make it harder for companies to keep up their recent pace of profit growth. Much of that growth came from relentless cost cutting and investment in equipment and technology to boost productivity during one of the weakest economic recoveries on record.

"But there are limits to that," said Bahreveh. "There's only so much companies can squeeze. So it's not to be like last year. That's what's worrying the stock market."

By CNBC's John Schoen. Follow him on Twitter @johnwschoen or email him.