Obama urged to concentrate on job creation to boost recovery

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US President Barack Obama should focus on policies that create jobs as he prepares to launch his re-election campaign, a leading economist said yesterday.

Mike Lenhoff, the chief strategist at stockbroker Brewin Dolphin, also warned that Italy’s economy could be heading for self-destruction as its borrowing costs soar.

Mr Lenhoff told the Yorkshire Post: “For America’s policymakers, the number one problem isn’t the budget deficit or debt sustainability.

“It’s unemployment – not enough jobs are being created.”

President Obama has been counting on an economic recovery to boost his chances of securing a second term.

However, the US unemployment rate is stuck at around nine per cent, and jobs growth has been described by analysts as “painfully slow”.

The number of Americans without jobs has increased by more than six million since the start of the recession.

At the same time, Democrats and Republicans are involved in negotiations which aim to deliver deficit reductions of at least 1.2 trillion US dollars. A deadline of November 23 has been set for a deal to be reached.

Mr Lenhoff said the eurozone’s instability affected everyone.

He added: “Stress in the eurozone interbank funding markets is putting at risk the stability of the global financial system and the stability of the global economy.” However, developing economies, such as Brazil, Russia, India and China, have a lot of “ammo” to engineer programmes of economic growth, Mr Lenhhoff said.

He added: “In contrast to central banks in the developed world, central banks in the developing world have lots of scope to cut interest rates.”

Mr Lenhoff said valuations in equity markets were still attractive, even if you allowed for a loss of earnings momentum.

Italian borrowing costs reached breaking point yesterday after Prime Minister Silvio Berlusconi’s promise to resign failed to raise optimism about the country’s ability to deliver economic reforms.

Italian 10-year bond yields shot above the seven per cent level that is widely deemed unsustainable, reflecting investors’ concerns that they may not get their money back. This fear also led to a rise in the cost of insuring against Italian debt default.

Italy has replaced Greece at the centre of the eurozone debt crisis and is teetering on the brink of requiring a bailout that Europe cannot afford to give.

Mr Lenhoff said yesterday: “It is beginning to look like Italy is now on a course of self-destruction where, yields are not only heading rapidly upwards but also running out of buyers, including possibly the ECB (European Central Bank). Who knows how much longer it will be willing to participate in supporting the market?

“So either the EFSF (European Financial Stability Facility) buys the bonds, though until it is leveraged, there is a limit to what it too can do, or there is external help from the IMF.

“A bailout of some kind may very well be on the cards.”