Can the government sustain its spending to support the U.S. economy? This remains the prominent question from politicians, economists and market watchers, concerning the health of the economy and market. Many policy makers favored stimulus spending as a solution to recent economic woes. However, is economic growth self-sustaining or a result of the stimulus?
Australia remained the only develop country to avoid a technical recession in 2009 and even experienced positive GDP growth because of a healthy export demand, mining investment and government stimulus.
However, the Australian economy is revealing signs of weakness, as much of the experienced growth resulted from government stimulus, not self-sustaining growth. The Australian dollar experienced significant declines last week with the ongoing revelation. The question stands: If increased spending isn’t working for Australia, will it work for the U.S.?
While uncertainty of the market’s future remains, there are a few economic forces that determine the market’s direction in 2010. Despite last week’s declines, there are still positive signs indicating an economic recovery. In one Bloomberg News study, economists forecast a 2.7 annual growth rate for GDP, the fastest rate since 2006.
Many companies are also increasing capital spending over the first quarter, a sign of self-sustaining growth. Rising payrolls and a leveling unemployment rate also signal increased productivity and extend the rally of many companies’ stock prices. Additionally, President Barack Obama’s proposed tax breaks make capital investments more attractive for many businesses.
The economy has come so far, so fast, and many believe that the continued results signify real signs of recovery. While there are glimpses of hope in the midst of economic turmoil, the road to recovery is long, arduous and uncertain at best.
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