Washington is gripped by politics with Democrats afraid of losing their majority in the mid-term election in November from the Republican onslaught on Obama Administration policies lock, stock and barrel. Democrats failed to get the President's signature Health Reform enacted as his first year achievement. Besides health care, financial regulations and climate and energy are other major measures languishing in Congress for months. A meager addition to stimulus was being pushed through for some job creation by way of more tax reliefs and extension of unemployment assistance which got reflected in a mild market recovery in the retail market.

While a health bill, a jumble of compromises in the year-long debate, was expected to be finally voted over-riding Republican opponents and Democrat dissenters before January 20, the Senate's Democrat majority leader Mr. C J Dodd has firmed up a sweeping financial regulation law, with the Administration's support, for policing Wall Street and empowering Fed to supervise institutions “too big to fail”. There are uncertainties how far such and other legislative priorities of the Obama Administration would be got through Congress in this election year.

Economic signals are mixed, modest gains in industrial output offset by weaknesses in consumer spending and unrelenting home foreclosures. Though job losses have moderated of late, it remains the most serious concern for the Administration and at stake is its credibility to ensure durable recovery to reduce the 9.7 per cent rate of unemployment. The economy's downturn is unlikely to be reversed without continued Federal support and Fed's emergency programmes including low or zero interest regime for an extended period.

In Europe, the debt crisis in Greece has delivered a blow to the 16-nation monetary union leading to fall in the value of euro, the major competitor to the dollar. Eurozone leaders dithered but finally resolved to stand in readiness to bail out Greece if it fails in its stated goal of reducing budget deficit of 12.7 per cent by four percentage points. They now see the urgency of tightening budgetary surveillance of the single currency union of 16 member-countries along with promoting an European Monetary Fund for Greece-type contingencies.

In Asia, China has begun to throw its weight around escalating trade tensions with the United States which has been pressing Beijing to move toward a more market-oriented exchange rate. Overall, developments across the world are putting at risk the G-20 Summit objective of rebalancing the world economy for strong and sustained growth as USA would no longer be the principal engine of global growth.

China and India led emerging economies in providing support for global recovery, in part, in the latter half of 2009. But both these powers have major problems of restructuring their economies to raise domestic consumption in the absence external demand for their goods and services returning to pre-crisis levels, whether from USA or EU. India's inflation is now close to double digit requiring monetary tightening, fiscal or administrative measures to tackle the food prices having proved negligible or ineffective.

China is also facing a surge in consumer prices, 2.7 per cent in February against the official target of 3 per cent, and more worryingly possible asset price bubbles with over-extended bank loans to the commercial property sector. China's massive stimulus helped its economy grow 8.7 per cent in 2009 and the World Bank projects 9.5 per cent in 2010, though the official target is a modest 8 per cent. More significantly, the Bank has urged China to tighten its macro-economic policy stance both through interest rates and “stronger exchange” policy both to contain inflationary expectations and overcome risks of property bubbles as well as promote global balance.

It is on the exchange rate that Sino-American relations have entered a tense phase with Premier Wen Jiabao rejecting US calls for more flexible exchange rate dubbing them as “trade protectionism”. Pressure is building in US Congress to name China as “currency manipulator” and for trade sanctions. In turn, the Prime Minister has charged Washington with failing to contain its fiscal deficits and defend the dollar to reassure the safety of investors in US Treasuries. China has been trimming its holdings, by 5.8 billion dollars over the last three months, though it still remains the biggest holder of US securities at 889 billion dollars in January.

Premier Wen contends that the yuan's exchange rate is held at a “stable and appropriate” level while authorities maintain they have to be cautious in making exchange rate moves when the world economy is still mired in recovery uncertainties. China has managed to gain its global share in exports though at a lower level and its trade surplus declined in 2009. China's toughening postures have to be viewed in the context of the recent welcome in White House for the Dalai Lama which it viewed as not respecting its sovereignty as also US arms sales to Taiwan.

IMF is maintaining its year-end forecast of 3.9 per cent growth for the world economy in 2010 though it has predicted slow recovery and underlined risks for smaller advanced economies, citing Greece's debt crisis and fiscal over-run which could have spill-over effects for other member-countries of the euro- zone. It will come up with an update before Finance Ministers gather in Washington for the spring meetings of the Fund and World Bank in the third week of April. OECD, the grouping of richer nations, says recession has eroded potential output of industrial economies over the medium term with an estimated loss of three per cent on average across the OECD area. The “deep scars” left by recession in the major economies would be visible for many years to come but OECD as well as WTO and UNCTAD have urged countries to resist protectionist temptations in international trade and labour markets.

US budgetary projections currently are for deficit to rise from 1.4 trillion dollar in 2009 to 1.56 trillion in 2010 and for trillion dollar deficits annually over the next decade. President Obama has set up a bipartite Finance Commission to come up with measures to bring down these deficits to sustainable level and present its report by the end of the year. The long-term projections are for US debt to rise from 13 trillion in 2010 to 22 trillion by 2010. Currently, debt held by the public and foreign governments which bought US treasury securities is about 8 trillion dollars and the rest represents liabilities to entitlement funds like social security, which have been used up to cover other Federal outlays. (IPA Service)