WASHINGTON: The global economy has a steep hill to climb out of recession, and it will need all engines pulling together to reach the top.
It is no secret that US consumers, who have been among the global economy's strongest drivers, are unlikely to return to their free-spending ways even when growth resumes.
That puts pressure on emerging powerhouse China to help pick up the slack. The coming week marks a critical test of whether it is up to the challenge.
On Thursday, China is expected to release second-quarter gross domestic product data, making it the first of the world's major economies to report on growth through June.
Economists polled by Reuters think China's GDP accelerated to 7.5 percent year-on-year from 6.1 percent in the first quarter. That would still be a shade below the 8 percent level economists consider necessary to create enough jobs for China's growing population.
China was quicker than many developed countries to step up government spending to stimulate its economy when the financial crisis intensified last year. The International Monetary Fund pointed to that as one of the positive factors in the global economy as it upgraded its forecast for 2010 growth.
China's June exports fell by a surprisingly steep 21.4 percent, evidence of just how dramatically the drop in US consumer spending is hurting trade.
"China is dead in the water without exports," said Jack Crooks, president of Black Swan Capital in Florida. "Until the US starts buying again, China's economy could get worse, not better. The brunt of global rebalancing is upon us, as it is for all those so dependent on exports."
That is a big reason why China's retail sales figures, also due Thursday, merit close watching for evidence that efforts to spur domestic demand are working. In a Reuters poll, economists thought June's retail sales would be up 15.2 percent from a year ago, the same as in May.
The strong growth may already be helping the United States recover from its longest recession since the Great Depression.
Trade figures released last Friday showed a surprising jump in May US exports. JPMorgan economist Michael Feroli said it was difficult to determine where those exports were going because the breakdown by geographical destination or origin is not seasonally adjusted.
He looked instead at year-on-year figures, which he said supported his "hunch" that China was lending support.
Feroli and other economists think the stronger-than-expected US exports mean the drop in second-quarter US GDP will be smaller than once feared.
Unfortunately for China, US demand is not providing the same lift. Rising unemployment and a heavy debt burden have left households wary of stepping up spending even as economic data has bolstered hopes the recession is ending.
Data Tuesday is expected to show US retail sales growth slowed slightly in June from the previous month.
Some economists polled by Reuters think sales may have actually fallen. Some of the largest US retailers reported disappointing June sales tallies last week, and consumer confidence has faded as the stock market rally has petered out.
"For those who think that the frugality theme is overplayed and that the American consumer is soon going to go back to his or her old ways of living beyond their means, think again," said David Rosenberg, chief economist at Toronto-based money management firm Gluskin Sheff.
This helps explain why many investors have their doubts about what will drive sustainable economic recovery, both in the United States and export-reliant countries.
Japan, like China, has suffered a massive decline in exports, pushing its economy into a deep recession. While there have been glimmers of hope that the economy is beginning to revive, the Bank of Japan may throw some cold water on recovery hopes at its policy-setting meeting Wednesday.