THE dog days of August have often spelled trouble for the world economy. In 2011 America’s politicians flirted with default and the euro seemed to be heading for collapse. The summer of 2012 brought another bout of euro angst and depressing evidence that many emerging economies had stalled. But so far this season the good news has outweighed the bad.

After a year and a half of recession, the euro area’s economy has begun to grow again. Its GDP rose at an annualised rate of 1.1% in the second quarter. Britain’s recovery has gathered pace.

Evidence is mounting that America’s GDP grew faster in the second quarter than the initial estimate of 1.7%, and has accelerated since. Healthy retail sales, rising production orders and low jobless claims all suggest that growth could be around 2.5%.

In China the main monthly indicators, from trade to industrial output, improved in July, easing fears that the world’s second-biggest economy was heading for a slump. And though Japan’s second-quarter GDP growth, at 2.6%, did not match the blistering 3.8% pace at the start of the year, it is still an impressive figure for a once-moribund economy.

Could this confluence of good news mark the beginning of a broad rebound? There are reasons for optimism—notably that macroeconomic policy in the rich world has become more growth-friendly.

But there are two main reasons for caution. First, in neither Europe nor Japan do microeconomic conditions point to a recovery that is both rapid and lasting.

Second, although China will avoid a hard landing, it will not be much of a spur to global growth. The result will be a fragile recovery that relies heavily on America.

Start with macroeconomic policy. In Japan Shinzo Abe’s fiscal and monetary stimulus has shocked the deflationary economy into life. In the euro area extreme austerity has been abandoned. The pace of budget cuts has fallen, from around 1.5% of GDP in 2012 to below 1% this year. Even Britain’s chancellor has become more flexible than his rhetoric suggests. America’s fiscal policy—the result of congressional brinkmanship rather than deliberate choice—is still daft, sucking money out of the economy.

But the main damage has passed: budget cuts and tax increases are damping growth less than at the start of the year. Monetary policy has also become more predictable.

Yes, the Federal Reserve sent bond yields surging with the announcement in June of its plans to “taper” its pace of bond-buying. But these plans are contingent on the recovery being strong enough to cope. And outside America more central banks have embraced the Fed’s “forward guidance”, laying out conditions that must be met before policy is tightened. Although these pledges are untested and macroeconomic mistakes are possible, they are less likely than before.


Fixing the plumbing
 
 
Better macroeconomics is a step forward, but its effect will be muted unless the financial plumbing is working, households are spending and firms are ready to invest. Those conditions hold in America, where repairs from the financial crisis are all but complete. After a painful adjustment, the housing recovery is built on solid foundations.

Consumer debt has plunged. Banks are keen to lend. Add in the supply-side boost from shale gas, and you have the makings of a strong recovery.

Elsewhere the good news looks thinner. Unlike America, the euro area has failed to clean up its banks or write down unpayable debts. Uncertainty over the pace of banking union has helped create a dysfunctional credit market, with firms in the region’s periphery starved of loans.

Europe’s recovery will not accelerate until this is fixed. Britain’s rebound may fizzle out because its companies are investing so little. Japan’s main problem is the gap between Mr Abe’s macroeconomic boldness and the timidity of his efforts at deregulation. Structural reform is meant to be the “third arrow” in the quiver of Abenomics, but he has yet to tackle cosseted sectors from farming to health care, so the economic rebound may not last.

China is more complicated. July’s figures suggest it is not sliding into a slump. But there is little reason to expect faster growth.

That is because China is in the midst of two tricky transitions: from an investment-led economy to a consumption-driven one; and from an economy addicted to rapidly rising credit to one that is more self-sustaining. China has the capacity to adapt without calamity, not least because it has the fiscal resources to absorb bad debts. But neither transition has yet gone far, and both imply slower growth.

Which leaves the United States as the likely engine of global growth. That is not, by itself, a bad thing. The world economy has relied on America’s oomph many times before, but a broad recovery would be stronger and safer. Rather than seeing better news as a chance to sit back, policymakers would be wise to redouble their efforts.