LONDON (Reuters) - Yet another budget showdown in Washington and yet another government crisis in Italy herald more turbulence for a global economy growing well below trend.
On top of these recurrent pitfalls, banks and households in Europe are still shedding debt, several big emerging economies are slowing and markets are struggling to decode the Federal Reserve's policy signals.
No wonder that words like 'modest' and 'moderate' pepper many of the latest growth outlooks. Yet there is a guarded confidence at some banks that a recovery, not powerful but worthy of the name, might finally be within reach.
Credit Suisse, for instance, is penciling in 3.8 percent global growth for 2014, up from 3.0 percent this year and surpassing what it sees as the trend rate of 3.5 percent.
A lessening of fiscal headwinds will be important in allowing the hoped-for pickup in the United States, said John Calverley, head of macroeconomic research with Standard Chartered Bank in Toronto.
"So you should start to see growth moving up well into the 2.5, 3.0 percent range, maybe more, over the next couple of years," he said. The U.S. economy has expanded at an average pace of less than 2 percent in the last four quarters.
NO BLINKING IN WASHINGTON YET
But that view could be sorely tested in coming days.
In Washington, a government shutdown from Tuesday drew nearer after the Republican-controlled House of Representatives voted to delay Democratic President Barack Obama's landmark healthcare law for a year as part of an emergency spending bill.
The White House, in its fourth major budget standoff with Congress since 2011, has vowed to veto the bill.
Congress also needs to raise the federal debt ceiling to avoid an unprecedented default in mid-October.
The notion that the issuer of the world's main reserve currency might be unable to meet its obligations is simply unthinkable for most in the market.
"Our basic view is that we will get through it as we've got through it time and time again," Jim McCormick, head of asset allocation research at Barclays, said.
Italy's political instability has also revived concerns about its stagnant economy. Centre-right leader Silvio Berlusconi effectively brought down the government of Prime Minister Enrico Letta by pulling his ministers out of the cabinet on Saturday, further delaying agreement on changes intended to reduce debt and revive growth.
President Giorgio Napolitano signaled that he would like Letta to try to forge a new coalition rather than call elections, but the uncertainty risks a further damaging rise in Italian bond yields, which hit a three-month high on Friday.
"We are paying for our political instability," Labour Minister Enrico Giovannini said.
CENTRAL BANK SIGNALS
To date bond investors have been largely reassured by the conditional promise that European Central Bank President Mario Draghi gave a year ago to buy the bonds of struggling euro member states if necessary to keep the single currency afloat.
Draghi could use the power of the pulpit to send a message to Rome's feuding politicians when he holds a news conference after an ECB meeting in Paris on Wednesday.
With the euro zone economy gathering modest momentum, no change in interest rates is on the cards.
But the ECB chief is likely to reaffirm his readiness to provide a new round of cheap, long-term funding if need be to prevent an unwanted rise in money market interest rates.
Some reckon the ECB could act in December, which is when the Fed might start to reduce its bond buying from $85 billion a month.
'Might' is the operative word because markets are no longer sure how to anticipate the Fed's reactions since the central bank shocked them by deciding this month not to start withdrawing monetary stimulus yet.
The Bank of England, and the ECB to a lesser extent, have also struggled to provide clear 'forward guidance' of how economic developments might shape their policy thinking.
"The most visible risk at the moment is the learning curve associated with new central bank procedures. The process of their learning how to talk to us and our learning how to listen to them is fraught with risks to financial stability," the Credit Suisse report said.
With Fed Chairman Ben Bernanke emphasizing that his timetable for reducing stimulus depends on the economy, investors could start to price in an October start if Friday's employment report is strong.
The economy is forecast to have added 180,000 non-farm jobs in September, above the latest three-month average of 148,000.
JAPAN GRASPS THE TAX NETTLE
In Japan, Prime Minister Shinzo Abe is expected on Tuesday to confirm that sales tax will rise in April to 8 percent from 5 percent, the first significant effort in 20 years to rein in the country's galloping debt.
To cushion the economic blow, Abe is preparing a stimulus package that will include tax breaks for companies that increase wages or capital expenditure.
Abe's announcement will follow the Bank of Japan's closely watched "tankan" business sentiment survey, with economists polled by Reuters expecting a bullish report.
If they are wrong, BOJ Governor Haruhiko Kuroda is likely to redouble his efforts to expand the monetary base and so banish 15 years of deflation, said James Malcolm, a foreign-exchange strategist with Deutsche Bank in London.
"Disappointing results would almost certainly bring forward expectations of additional central bank easing," he said in a note, suggesting that such a move "might even become a live option" when policy makers conclude their next meeting on Friday. A more realistic date, however, was the BOJ's October 31 meeting.
(Editing by Ruth Pitchford)