US recovery puts onus on Europe and China

IMF has already said euro zone needs more monetary easing

The world's top financial policymakers descend on Washington later this week with a debate fizzing once again about what needs to be done to galvanise economic growth.

The International Monetary Fund has already called on Europe to do more ahead of the IMF April 11-13 Spring gathering, alongside which G20 finance ministers and central bankers will meet.

That irritated European Central Bank chief Mario Draghi who suggested the Fund should put out a wish list for the United States just before the next Federal Reserve policy meeting.

But with the United States firmly in recovery mode - its monthly jobs report on Friday showed hiring was robust in March - it is natural that much of the focus will be on Europe and China and their ability to foster sustainable growth.

Last week, Beijing said it would accelerate construction of rail projects and cut taxes for small firms, the first concrete action this year to boost activity. Economists still expect growth in the world's second largest economy to slow into the middle of the year.

Liquidity crunches and a first-ever domestic bond default, as Beijing tries to rebalance its economy, have put investors on edge though they have taken comfort from the fact that the worse things get the more likely it is the government will stimulate the economy.

Chinese trade figures for March, due on Thursday, will give the best indication of the latest economic state of play.

Goldman Sachs expects global growth to pick up in the second quarter of the year.

"The US economy is set to bounce back from the drags from weather and destocking. And China's extremely weak start to the year should also give way to something a little better, as modest stimulus falls into place," said Dominic Wilson, chief markets economist at Goldman.

The bigger picture, Wilson said, was that US monetary conditions remain ultra-easy despite the tapering of bond purchases while further easing was to be expected from the ECB and Bank of Japan, though probably not at its meeting this week.

Minutes of the Fed's last policy meeting, due on Wednesday, will be closely read given that was in comments just after that Janet Yellen rattled markets by suggesting interest rates could rise rather earlier than had been priced in.

None of the Bank of England, Sweden's Riksbank or Poland's central bank are expected to shift tack in the week to come.

SHIFT IN FRANKFURT?

The ECB sat on its hands last week but Draghi was at pains to say future policy action - including printing money which is the toughest pill for it to swallow - was possible if inflation did not pick up.

The big question is whether the ECB is trying to talk down a strong euro, which will cut import prices and depress inflation further, without having to take drastic action or whether the sense of alarm has grown.

Draghi and his key lieutenants will attend the IMF meeting and they will not be short of advice. His deputy, Vitor Constancio, speaks at the European Parliament on Monday.

IMF head Christine Lagarde has already said the euro zone needs more monetary easing including via unconventional measures but with inflation likely to pick up in April for technical reasons, she is likely to be left waiting.

"Assuming the April inflation rate comes in higher, the discussion about quantitative easing (money printing to buy assets) is likely to subside," said Michael Schubert, economist at Commerzbank in Frankfurt.

Within the euro zone, the growth debate has been revived by President Francois Hollande's reshuffled cabinet saying France may not meet an already-extended deadline to reduce its budget deficit to European Union limits in order to allow for tax cuts to help consumers and businesses.

EU officials have called on Paris to meet its targets but Italy's new premier, Matteo Renzi, is pushing on similar ground and they will find allies in Washington.

Ukraine will also loom large at the IMF meeting. The Fund has offered a bailout of up to $18 billion, hoping to pull in $27 billion overall, and said it is confident whatever hue of government wins late May elections will stick with the programme which includes dramatic increase in domestic gas prices.

Still up for discussion is whether other conditions could be less stringent than the IMF would usually demand.

Overall, whether much of substance comes from the Group of 20 and IMF meetings remains to be seen.

"The big picture arising from our analysis is that effects of G20 summits are small, short-lived, non-systematic and non-robust," a study published by the ECB said on Friday.