Data in the coming week should deliver more proof that a global recovery is at hand, but policy-makers are facing up to how sub-par growth over the long haul might constrain their policy choices.
Many economists are turning bullish on the final two quarters of 2009, but 2010 and beyond is still a worry.
It's encouraging and helpful and hopeful that we have a good third quarter and fourth quarter. But what is the rate of growth after that? Dallas Fed President Richard Fisher mused after a speech on Thursday.
Talk of monetary and fiscal exit strategies is raging wherever policy-makers gather. But they seem theoretical, as few want to risk tipping over the apple cart of recovery.
Now is not the time to exit. But I would like to make it clear that the European Central Bank has an exit strategy, and we stand ready to put it into action, European Central Bank President Jean-Claude Trichet said in Frankfurt on Friday.
Still, the sun seems to be coming out -- for a while, at least. Enjoy it, but don't forget the sunscreen.
As the United States, with its jobless rate at a 26-year high of 9.7 percent, celebrates the Labor Day holiday on Monday, Germany's manufacturers are expected to report a 2 percent gain in July industrial orders.
On Tuesday, the euro-zone's largest economy should show a 1.5 percent rise in industrial output. In both instances. the decline from bleak levels of the winter and spring continues to narrow.
Sustainability is an issue for recovery in Germany and many other nations, especially as various economic support measures come to a close.
The main uncertainly surrounds the outlook for consumer goods against the background of increasing unemployment and the sustainability of the upturn once the restocking process has taken its course, said analysts at 4CAST Ltd.
On Friday, European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said that euro-zone governments should not waste much time in shutting down stimulus programs once recovery is under way.
Neatly capturing the policy-makers' bind, however, he noted that assuming 2.25 percent euro-zone annual output growth from 2011 onward might be considered a generous assumption.
GONE MEANS GONE
Fears of persistently high, structural U.S. unemployment became more pointed after Friday's August jobs report, forcing the Obama administration onto the defensive.
Christina Romer, chairwoman of the White House Council of Economic Advisers, vowed after the report that the United States would not get locked into a sustained period of high joblessness that some associate with Europe.
PIMCO strategist Tony Crescenzi said in a research note that the Labor Department data showed that 52.6 percent of the unemployed were not on temporary layoff in August, far above the 30-year average of about 34 percent and the peaks seen in recent recessions.
Many job losses are occurring in industries with broken business models and jobs won't return quickly, he said.
The gulf between 9.7 percent unemployment and the 5 percent level often seen as consistent with non-inflationary growth seems wide. But some analysts call for more patience.
It is too soon to conclude that the U.S. is enduring another jobless recovery. That said, if the recession ended in June or July, it is worrying that at this stage payrolls are still falling by over 200,000 a month, said Paul Dales, U.S. economist at Capital Economics in Toronto.
Some pundits termed job market improvement visible, even if microscopic. You may need a jeweler's loupe to detect it, said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, New Jersey.
LOWER TREND GROWTH POSES CHALLENGES
Similar to Gonzalez-Paramo's assessment of the euro-zone, many U.S. officials concede the risk of lower trend growth rates going forward.
Charles Plosser, president of the Philadelphia Fed, said the U.S. economy had sustained a possibly permanent shock, and the Dallas Fed's Fisher suggested preparing for a more savings-driven society.
I'm skeptical we will grow at the same pace as we did in the past decade, Fisher said.
If U.S. trend growth settles in at a lower level, it could make the right monetary policy harder to pinpoint by making inflation overshoots easier.
A slew of Fed policy-makers will reflect on the state of play this week.
In particular, Chicago Fed President Charles Evans takes on The Great Inflation Debate in New York on Wednesday, and Fed Vice Chairman Donald Kohn speaks on the central bank's unconventional policies in Washington on Thursday.
The Fed's anecdotal view of the U.S. economy, the Beige Book, is also due for release on Wednesday.
(Additional reporting by John Parry in New York; Editing by Dan Grebler)