Which way is up?

The world’s central bankers and politicians were praised for their coordinated response to the 2008 financial crisis. But as the global economy limps along, it turns out that managing the so-called recovery may prove to be the biggest challenge yet. Unlike the credit crunch, which was fixed by throwing massive amounts of money at it, there’s no longer a clear path forward for the economy now that interest rates are near zero and billions worth of stimulus have failed to produce the desired effect.

With the key U.S. economy sputtering along with the rest of the world’s, the debate continues to rage about whether even more stimulus is needed to avoid another downturn. Last week, a group of some 300 economists signed a letter calling for the U.S. government to keep the spending taps open in an effort to juice an economy that continues to shed jobs. “History suggests that a tenuous recovery is no time to practise austerity,” said the group, organized by the left-leaning Campaign for America’s Future. On the other hand, there are concerns about further inflating the deficit—already forecast to be US$1.3 trillion this fiscal year—lest the country’s ballooning debt drag it into the abyss.

In Europe, meanwhile, moves to rein in spending have been met with street protests, and warnings from the Organisation for Economic Co-operation and Development that cutting too much, too soon could send the patient back into the emergency ward. A recent OECD report said economic growth among G7 countries is slower than previously anticipated. “It is not yet clear whether the loss of momentum in the recovery is temporary . . . or whether it signals greater underlying weaknesses in private spending,” the report said, adding that an appropriate response would be to dial back austerity efforts temporarily and pursue additional stimulus measures if the slowdown proves to be more permanent.

It’s amid this maelstrom of uncertainty that Bank of Canada governor Mark Carney decided to hike interest rates again earlier this month. The move was a reflection of the bank’s confidence in Canada’s economic recovery. Now if there was only reason to be confident in the rest of the world’s.