Action is needed in the eurozone and Japan, according to the Treasury Secretary.

From Secretary Lew’s recent speech:

“In short, status quo policies in Europe have not achieved our common G-20 objective of strong, sustainable, and balanced growth. The ECB has taken forceful steps to support the economy through accommodative monetary policy. But as recent economic performance suggests, this alone has not proven sufficient to restore healthy growth. Resolute action by national authorities and other European bodies is needed to reduce the risk that the region could fall into a deeper slump. The world cannot afford a European lost decade.

…

“In Japan, the “three arrows” of Prime Minister Abe’s economic program were designed to forcefully combat deflation and fuel sustained economic growth. The first two arrows – monetary and fiscal stimulus – contributed to stronger growth in 2013, but growth has weakened this year as Japan stepped back from its efforts on the fiscal side. The third arrow – structural reforms – has not been fully released. Earlier this year, the Abe Administration put forward corporate governance reform and other structural measures. Even so, the test will be whether the third arrow is sufficient to transform Japan’s economy, and the jury is still out.

The importance of Japan and the euro area growth is highlighted by the amount of world GDP accounted by those economies. Figure 1 depicts the contributions in billions of US current dollars, as projected in the October World Economic Outlook.

Figure 1: Contributions to world GDP growth in billions of US dollars, from China (light blue), US (purple), euro area (green), Japan (red), and rest-of-world (dark blue). Source: IMF WEO database (October 2014) and author’s calculations.

The euro area’s travails are well known, and while it eked out a 0.2% q/q growth in the 3rd quarter, as pointed out, the fact that a sigh of relief was heard is testimony to the fact that more needs to be done, with respect to credit easing by the ECB and the governments in terms of loosening fiscal policy.