Spain. High unemployment continues to be a stumbling block for the U.S. recovery, but at 8.8 percent, our unemployment rate pales in comparison to Spain's jobless rate, which stood at a record 20.5 percent in February. The rate is even higher for younger workers, at about 40 percent.
"That doesn't bode well for any significant recovery in consumer spending over the next few years," says Raj Badiani, senior economist at IHS Global Insight. High consumer debt levels are also likely to depress future consumer spending, a sector which, along with exports, Spain relies heavily upon to fuel its economy. "Before the crisis, consumers accumulated record levels of debt," he says. "High levels of debt with a dysfunctional labor market is a really, really bad combination."
Add to that a bloated housing market and a troubled banking sector, and the outlook for Spain's economic growth is a paltry 0.8 percent, according to its central bank. "What happens in the housing market impacts what happens in the banking sector. They go hand in hand." Badiani says.
The challenge facing Spain now is that no one really knows how much home prices have fallen, and without that figure, it's unclear exactly how exposed the banking sector is to real estate losses, he says. "The real concern is when are housing prices going to start to recover, and when is the housing glut going to start to disappear?" Badiani says.
As Spain institutes austerity measures to reduce its budget deficit, spending cuts will impact economic growth as well. "Apart from exports, there really isn't another engine of growth," Badiani says.
Japan. While Japan has grappled with slow growth and stagnation for decades, the recent devastating earthquake, subsequent tsunami, and nuclear crisis have crippled the country. Already shouldering net public debt levels of more than 100 percent of its GDP, Japan is likely to face additional debt pressures as the country rebuilds.
"Even prior to the earthquake, the Japanese economy had been doing very poorly," Fatas says. "It's an example of an advanced economy that's failing to live up to its potential. It's a combination of many things—their efficiency and innovation has not matched that of the U.S. or even European countries and their monetary policy has not been the best."
[See 5 Reasons Investors Shouldn't Bail on Japan.]
Experts predict Japan will see momentum build during its reconstruction, but caution that temporary spikes in GDP growth due to increased infrastructure projects will not liberate the country from its structural financial and debt problems.
China. "I would characterize China right now as a big question mark," Czinkota says. After more than two decades of economic prosperity, the pressures of rapid growth might be catching up to the second largest economy in the world, he says. "There is certainly a greater degree of uncertainty about China right now than there is about the U.S."
In particular, the prospect of growth-flattening inflation has troubled China. While the country's central bank has raised interest rates to combat inflation, Fatas says managing the business cycle could prove to be a challenge over the next few years. "There's been some concern that they're getting to a point where there's too much inflation, but that's on a fairly short horizon," he says. "Growing at the rate that they have been for a longer period is not going to be easy. That is where you need a structural transformation of the economy."
Many questions surround the prospect and necessity of that transformation, which is complicated by political and social factors. "This is not a market economy. It's a country that has a lot of political questions," he says. "If this doesn't happen smoothly, it could lead to slowdown in growth or stagnation for a few years."
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