Global Economy: Shaping Up for Another Tricky Vintage

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Peter Mintz | First Light | Getty Images

Just three months in, and already there is a nagging sense that 2013, like last year and the one before, will produce another disappointing vintage for the world economy.

Japan's $1.4 trillion monetary barrage stole the show last week, but it was the dismal turn in data from the United States and Europe that brought home how this year is panning out worse than many had hoped.

News that American employers hired far fewer staff in March than even the gloomiest predictions managed to derail the heady rise of stock markets over the last few months.

And business surveys from the euro zone confirmed recession there is dragging on, confounding hopes for improvement, with France's economy deteriorating sharply.

(Read More: Remember Euro Breakup Fears? They Are Back)

Hopes now rest with China and that signs of renewed vitality in the world's second-biggest economy can underpin the global economy.

"I'm hopeful we're not going to see the slide back that we've seen over the last couple of years," said Victoria Clarke, economist at Investec in London.

"We see China steadily plugging away, but certainly not a return to double-digit growth. That should at least support the U.S. and more broadly, the global economy."

(Read More: China Exceeds U.S. as Lead Oil Importer)

Europe remains the weak link, and this week U.S. Treasury Secretary Jack Lew, in his first official trip as treasury chief, will visit France, Belgium and Germany to discuss ways European economies can stimulate growth.

Lew and his European counterparts have common ground as their respective economic problems are partly home-grown - owing to political impasse in the United States, and political impotence in Europe.

The United States added just 88,000 non-farm jobs last month, the weakest pace in nine months and a sign that Washington's austerity drive may be sapping momentum from the economy. That came after business surveys showed slowing growth.

"Unfortunately, more recent data suggest that the U.S. has entered another spring slowdown and that the impressive rate of growth in the first quarter won't be sustained in the second," said Mohamed El-Erian, co-chief investment officer at PIMCO in California.

In Europe, such paltry jobs growth would be the envy of many members of the euro zone such as Greece or Spain, where more than one in four workers cannot find employment.

Getting to the Core

Lew will also discuss a planned free trade agreement between the United States and the 27-nation European Union, which could give a major boost to both sides' economies.

(Read More: Lew's Europe Visit Comes at a Critical Time for Euro)

But that won't help soon enough, and as the second quarter gets underway, it is hard to see what will drag the euro zone from its economic rut.

While the botched bailout of Cyprus and Italy's power vacuum have hogged the headlines in recent weeks, an accelerating slump in France's economy is also causing alarm.

Purchasing managers surveys last week showed the euro zone's No. 2 economy is now flagging at a rate unseen since the nadir of the Great Recession of 2008-09.

A traditional "core" member of the euro zone along with Germany, France's downturn now outstrips even those in Spain and Italy, on the struggling euro zone periphery.

(Read More: France Appeals for German Leniency on Deficit)

"We used to write 'periphery' and 'core' quite freely and knowing who that meant, but now it's less clear," said Investec's Clarke.

"The only major country showing any resilience is Germany, and that's borderline now. It's quite possible that even Germany gets dragged down, and it just (becomes) a weak euro area."

Economic data this week is unlikely to shed much more light on the euro zone's slump.

European Central Bank (ECB) President Mario Draghi said on Thursday that weakness is spreading from euro zone countries afflicted by "fragmentation" - where monetary policy is having little effect - to places where that is not an issue.

Digesting Japan's Gamble

Draghi opened the door to an interest rate cut as soon as next month, saying the ECB stands "ready to act".

That came straight after the Bank of Japan (BOJ) promised to inject around $1.4 trillion into the Japanese economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows.

The BOJ's aggressiveness received cautious endorsements from U.S. Federal Reserve policymakers, who said it could help economies everywhere.

(Read More: BOJ Throws In Kitchen Sink in War With Deflation)

"In a way they fill in one more piece of a global picture of aggressive accommodation," said Atlanta Fed President Dennis Lockhart, noting the BOJ's move leaves the ECB as the least accommodative of the developed world's big three central banks.

Fed Chairman Ben Bernanke hasn't yet commented on Japan's new monetary gambit, although he is due to speak on Monday about stress-testing banks.

Minutes from the Fed's March meeting are due on Wednesday, and even if they indicate that some policymakers were thinking about scaling back asset purchases, the poor economic data since then would surely take that off the table.